When to Transition from LLC to S Corp

When to form an LLC and elect to have it taxed as an S Corporation. In this video I answer the following questions:
1️⃣ What taxes do you pay as an employee?
2️⃣ What taxes do you pay as a sole proprietor?
3️⃣ What taxes do you pay as an LLC?
4️⃣ What taxes do you pay if you elect to be taxed as an S Corp?
5️⃣ When does an S Corp make financial sense?
6️⃣ When should you form an LLC?
7️⃣ Where to Form an LLC or S Corp for FREE!
⏱ Timestamps ⏱
00:00 Topic: When to switch from LLC to S Corp
00:15 Questions I answer in this video
01:24 What taxes do you pay as an employee working for an employer?
04:23 What taxes do you pay as a sole proprietor or LLC?
06:28 What taxes do you pay as an S Corporation?
10:50 When to switch from LLC to S Corp?
15:00 When to form an LLC?
17:55 Where to form an LLC or S Corp for free?
19:20 Register for Course Waitlist
20:50 When NOT to be an S Corp
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#LLC #SCorp #Taxes

[@toriparis3370]

Thank you so much for this. Extremely helpful video that is clear and easy to understand!!! You have saved me hours of scouring the internet reading useless articles.

[@peterlwin]

I've had my small business (LLC Sole Prop) for 5 years now and am beating myself that I didn't do the research before. I stumbled on your channel and think you have really great content! Thank you! I will be reaching out on your site!

[@NaviMarajCPA]

Hey Peter! Better late than never right? Glad you found the channel and are learning!

[@ashleysmith6023]

This was great! Extremely informative and very clear.

[@ElCidPhysics90]

I've been waiting for a video like this. This is so good. Just wish I had that spreadsheet to play around with.

[@jaybrdoubleez]

This was sooooooo helpful!!!! Thank you soo much!

[@parisaheidarzadeh5548]

I watched so many videos about S-Corps and LLCs and this one was for sure the best one and had the most comprehensive and clarified information about them. I finally got answers to my questions. Thank you soooooo much!

[@elizabethruiz9006]

I’m VERY impressed with how simple you make this! Thank you! thank you!

[@NaviMarajCPA]

Thanks Elizabeth - it's a gift I didn't know I had until starting to create these videos.

[@billwilder1340]

Thanks for the info!!

[@tonyy5739]

Finally, a clear explanation. You are great!

[@NaviMarajCPA]

Thanks @Tony Y! Appreciate the feedback.

[@CSIKauchik]

Hello Mr. Navi Maraj, CPA You have gained another subscriber to follow you as a model to do the job and decode processes. Thank you for the great content.

[@AnomalyBelleza]

Love your channel. I have viewed only 2 videos so far and have more clarity than I have ever had about taxation and some of these categorical entities. I am definitely booking a consultation soon.

[@NaviMarajCPA]

Thanks for the feedback! Glad you are learning!

[@OrlandoSimikians]

Well - this video and you other videos gave me enough info to push back on my soon to be former Accountant about him calculating my taxes incorrectly - specifically the self employment taxes as an S Corp!

[@VictoryReverseMortgage]

Navi, yours is the most informative content and delivered in the most professional manner. Clear and concise. Some of the other channels you have to watch for an hour with ridiculous and unnecessary back-and-forth banter, I think it’s just a stretch out the information to make it a longer viewing on KZbin. A complete turn off. I look forward to taking your course to learn more to help in the coming year’s tax filing.

[@nadineschleske3481]

Awesome Videos!!!! I will continue to follow you. You have confirmed about 95% of what I am doing is correct. Sometimes it is so hard to decipher what really needs to be done from other videos/articles/IRS content; None of that content is as clear as your videos. The one thing that I still cannot get clear information on is the S corp compensation of officers and/or how to account for items pd for out of the corporation on behalf of an officer. There is a salary pd. so the reasonable compensation is accounted for. If you could send me the excel spreadsheet from your "When to Transition from LLC to S Corp" video that would save me some time so I don't have to recreate it :) I would love to schedule a consultation with you as well...I have a few more question :) Thank you!!!!

[@LessonsUnlocked]

Appreciate the video, this confirms my understanding as I knew most of this when structuring my LLC but did not elect as an S-corp because of the math I did based on this understanding. I have not found my answer anywhere to confirm my understanding on when to switch over with a reasonable salary being high due to my industry, such that my business income have not exceeded what I normally make as a W2, which was a high income to begin with, as an independent contractor for the same type of work. Is a reasonable salary defined to be relative to the business income in what the business can afford to pay an employee (myself) regardless of the industry? In my case I feel that I have to make significant amount of business income in order to take advantage of an S-corp structure unless I choose to pay what I can “reasonably” afford to pay myself a salary relative to my current business income which is less than my previous W2 income. Hope that makes sense, would love to hear your thoughts on this scenario, thanks!

[@LessonsLearnedNoGuarantees]

This is an awesome video. Im wondering how this plays out if your have a W2 job and have multiple side hustles but want to put them all under one entity. What would be the best entity to use in that case? Are they any videos that explains this?

[@NaviMarajCPA]

Thanks for the feedback. I don't have a video made for that particular scenario but I was planning on making one soon. Stay tuned!

[@onlyjumi]

Great content! Could i get access to this spreadsheet so that i could use it to gauge my taxes?

[@NaviMarajCPA]

Shoot me an email referencing the specific video and I can send you over a copy.

[@emilygrace1960]

Hey Navi - Do you have a video on tax write offs we need to be thinking about while working as a Loan Signing Agent? I don’t want to miss anything because I didn’t know it was eligible and I wasn’t tracking it... I want to be sure I’m documenting everything I need to and the right way so I don’t have any issues at tax time and I don’t miss possible write offs.

[@NaviMarajCPA]

Hi Emily! You can visit either my website which is navimarajcpa.com or my KZbin channel. On my website homepage, if you scroll to the bottom there is a video library that is categorized. One of the categories is called “maximizing deductions”. On my KZbin channel there is a playlist with a similar name with all videos on this topic. Enjoy!

[@MiddleFace]

Hi Navi, thank YOU for the simple to understand video! Not only do I now understand the math, but the side by side comparison is amazing! Question: my husband and are are 50/50 managing members in an sole prop LLC formed in March 2018 (Texas) and until recently, we not aware of the tax saving benefits of S-corp election. We have not paid ourselves via payroll (W2) since LLC formation. Is it still possible to gain S-corp status? If yes, can you state the likelihood? If not possible, do we simply form a new LLC (with S-corp status from the beginning, then transfer everything over to that new entity??? Thank YOU so much much! Julie.

[@NaviMarajCPA]

Hey Julie...you're welcome. You can have your existing LLC taxed as an S Corporation by completing (Form 2553) with the IRS. It's likely too late to go back and have your LLC taxed as an S corp for prior tax years but you can still have it done for the full year of 2021. I would consult with a professional to discuss the pros and cons of doing this.

[@MiddleFace]

@@NaviMarajCPA ,,, THANK YOU!

[@delsol7878]

I heard from another tax lawyer on KZbin saying that if you have high W2 income, then you don't have to take salary from s-corp/LLC.

[@renaeleahy3678]

When being taxed as an S-corp, would the 15% Federal tax rate be only applied to the $40k in wages in your example? Or are Federal and State tax rates also applied to Distributions?

[@Vane1312]

great video. one question if I'm register a LLC two owners, my business is considered an S Corp automatically?

[@thegamsta7133]

I believe that LLC would be a partnership, and that you’d have to file form 2553 to transition to an S-corp.

[@aslanerken6918]

hi Navi! I'm a truck driver and i opened LLC in the beginning of the year. Can I switch to S corp now in December or its too late now. Should I file an election form in the beginning of the year too?

[@derekpmoore]

This S Corp strategy also minimizes your Social Security benefit at end of life, since your benefit is the average of your 30 highest earning years. Can you show how to balance reasonable compensation and eventual Social Security benefit?

[@user-mf4gz3sp1q]

...best answer is don't depend on SS...control your own money and therefore your own destiny...

[@jodypilgrim4575]

Where can we find the spreadsheet you used?

[@swervomatic]

I just mailed in my S corp election paperwork yesterday. Should i start pay roll on myself now? Or wait until I get the approval?

[@jeremyclark4471]

Is it possible to get this spreadsheet?

[@Lulee693]

Can I purchase that spreadsheet?

[@gaithetrainer]

Could we get the excel to download?

[@et_phonehome_2822]

What is the tax implication if one wants to dissolve the S-Corp and where does it’s money go?

[@user-mf4gz3sp1q]

...the S Corp isn't an entity...it is only the taxation election (Subchapter S) of an entity...

[@joseproo6206]

if a take election of LLC to S Corp., form 2553, this tax return will submit on form 1065 or 1120S ?

[@jimross2101]

I just want to point out that with a sole proprietorship/single-member LLC you do not pay any social security tax or Medicare tax when you file taxes using Schedule E. Your example assumes filing taxes using Schedule C. You elude to that at the end of the video though...

[@hoyeay]

If you materially participate in the business it's usually always Schedule C. The only reason it would be Schedule E is for passive rental property, royalties, and PASSIVE businesses.

[@Samuelsonfranz]

Can I file as an S-Corp as a DACA recipient?

[@melleb916]

For the love of god, please remove the yellow circle from the pointer, it's very distracting lol

[@NaviMarajCPA]

You must have been a cat in your previous life (kidding). I can see how it is distracting but I covered a lot of numbers in this video so I wanted people to know where the numbers were coming from. I'll take your suggestion into consideration for future videos. Thanks for watching!

[@jamesm_]

Your distributions were higher then your salary? How is this justifiable and "reasonable"?

[@NaviMarajCPA]

Reasonable compensation is a massive topic and each individual business needs to have a consult with their CPA to discuss their unique business and the services the owner is performing in the business. That said, in general, the more money a business makes, the less they would have to take out of the company in the form of payroll and the more they may be able to take as a distribution.

[@fallin4271]

How to get in touch with you

[@NaviMarajCPA]

You can shoot me an email but you will receive a generic-ish response. Email address is [e-mail].

[@gsp064]

Hey Navi, ER taxes on John's payroll would be deductible on Scorp's taxes right ? So K1 will be reduced by that ER taxes ?

[@NaviMarajCPA]

I don’t remember the details of this video but what you’re saying sounds correct. 👍🏼

[@gsp064]

@@NaviMarajCPA Amazing, I am still on video, and you answered. Appreciate Sir.