LLC vs S-corp! | Why You Need To Know This!

okay here's my first punch why the LLC is great no matter what type of small business you're starting no matter even if it's a rental property and you're buying your first rental you've got a side hustle you're doing Uber you're doing whatever the LLC is the great first step it's the it's the best to start with because it gives you flexibility to make changes later and you need that entity to get your EIN get your name get legit get out there go hard you're going to feel confident you're going to feel proud you're like damn it I started my company it's going to motivate you I don't think you can say that for the escort okay well let me just say llc's do not save taxes big misconception people think I got an LLC and I'm Gonna Save taxes I can't tell how many clients told me hey man I'm so excited I said I may LLC I'm gonna be saving taxes that's not going to do anything for you but I'll tell you what will save you taxes and S corporation [Music] welcome everybody to this week's episode of The Main Street business podcast this is a WWF unplugged that is it WWF I think it's uh WWF that's old school is that that's like Hulk Hogan oh okay you know era I think it's um WWE I don't know what we're doing today is we are going head-to-head on the LLC versus S Corp there's people out there that like they think the world revolves around one of those entities well they both have pros and cons and we are randomly going to choose a side here shortly yeah and have to defend it this is like high school debate it's high school debate you don't know what position you're getting but you're stuck with it you got to argue for it so we're going to talk about LLC versus S Corp now keep in mind sometimes you need an LLC sometimes you need an S corp what are the differences between the two maybe you're in a situation where you need both because what's going on in your life and your business and Investments so we'll hit that too but critical topic we're of course setting up hundreds of llc's and S corpse every month at our Law Firm kqs lawyers so we feel like we've been down this road and Mark and I both have S Corps and llc's we do proud owners of s Corps and llc's here it's gonna be good it's gonna be good I wore a leather jacket jacket today um because you knew there was a fight there was a fight I had to you know put on me you know what do they call it in Greece or in you know who wore a leather jacket and got beat up a red leather jacket Johnny and Karate Kid oh that's true this kind of looks like that but you know I was going with John Travolta in Greece oh you know he's pretty he's pretty cool all right so um we're gonna have some fun with this now our studio producer Tristan's gonna bring us a slip of paper right now and tell us who we are arguing for drama okay what do we get oh Roth IRA no oh okay you've got the S Corp escort I got the LLC ooh you're a toast oh we'll see about that we'll see about that it's gonna be good okay are you gonna throw the first Punch Yeah I'm gonna go say yeah I just want you to throw the first punch I'm gonna say he started it there we go all right so all of you out there okay here's my first punch why the LLC is great okay no matter what type of small business you're starting no matter even if it's a rental property and you're buying your first rental you've got a side hustle you're doing Uber you're doing whatever the LLC is the great first step it's the best to start with because it gives you flexibility to make changes later and you need that entity to get your EIN get your name get legit get out there go hard you're going to feel confident you're going to feel proud you're like damn it I started my company it's going to motivate you I don't think you can say that for the S Corp okay I'm gonna throw a punch you know right at the llc's face wow I'm getting nervous here I gotta get my Krav Maga going here I'm going to deflect that make sure okay all right here goes the body shot yeah set you up there um Locs do not save taxes okay well let me just say llc's do not save taxes big misconception people think I got an LLC and I'm Gonna Save taxes I can't tell how many clients told me hey man I'm so excited I said I mean LLC I'm gonna be saving taxes that's not going to do anything for you but I'll tell you what will save you taxes an S corporation okay an S corporation if you have ordinary income you're selling goods or services the S corporation entity is the One You're Gonna Want now you gotta have some net income of maybe 40 Grand but the S corporation is going to save tax we have separate podcasts on how that works but it's basically saving you on self-employment tax okay ready okay coming back this is a right hook okay I can always convert my LLC to an S corp if I need to oh even retro so my little Uber driver's like okay Mark I'll get my LLC going and they have a kick-ass here they do great they're making money and then they're like man I should have done an S corp oh we can take care of you we can backdate that LLC to an S corp to the first of the year and save those taxes if necessary what do you got to say about that I like that I like this so you're kind of like you know you knew you should have been an escort you know you're like I know it's just an escort boys but sometimes you do got to grow into it and that is I'll be you know candid here you know I don't want to beat up the LLC too much because we love them obviously um so uh a lot of times that's a great move if you're a small business owner starting out and you're like man I got a lot of expenses maybe I'm making five or ten Grand a year at first and let's be real a lot of businesses don't make money their first couple years yeah it takes a while to really get the ball rolling get things profitable you're spending money to make money you got to get over that hump to where you start making net income and I so I like that for a lot of clients who are like out of the gun they want an entity they want some asset protection they want to be legit but they don't know they have the net income yet we can add this election in but what I would say then is once you do that you're in my account because now where are you you may be an LLC but the IRS you're an escort that's right that's right and now you're on my team that's right you know I was going to say that would be a good counter argument if Matt said that he said it you're smart that's why I love you you're smart um well I will this is the reconciliatory portion of the fight you know this is like in boxing where they kind of hug while they're resting yeah okay um so I want to concede as well it is true the LLC does not save taxes uh that LLC opens the door for the S Corp conversion later it creates legitimacy just like I said it gets you out of the gate off Off to the Races you're cruising but it does not save taxes please please please do not think that the LLC is going to open up this wonderful uh you know tax write-off regime that you weren't able to participate in I was in fact at a workshop up in Idaho Falls um over the weekend and um after teaching for an hour or two someone raised their hand and said well I just started my company but I have to have an LLC before I can write off my home office right I'm like no so all of you out there you know this is a little defense for anybody that's thinking LLC or S Corp you don't have to have either one of these if you want to just start your sole proprietorship start tracking your income and start taking write-offs get in startup Mode start taking tracking your expenses um so there is that camp you know you could you could go either way yeah but I like that you put a little little defense in there what was Dick Cheney call that you know a little preemptive preemptive preemptive strike right there yeah there we go that is a crazy movie too that's a good one yeah a vice Christian uh oh Christian Bale I can't believe what he looks like in that great movie um he's such a good actor okay we should have Christian Bale on the show since you got to take some you know I'm gonna make a little preemptive strike on the S Corp okay or kind of like you know kind of confess make a little confession oh I was going to come at you oh yeah you don't you don't need to all right you don't need to give me arguments you don't need to let your guard down I can take I can throw it throw another punch the S Corp requires a tax return and payroll they can be a little more costly to maintain yeah I'd like this Simplicity and affordability of an LLC compared to the S curve there you go okay I like that's a fair point that's a fair point but you know what I get with that tax return and that payroll less audit risk you with your sole proprietorship your LLC flowing down on a schedule C or your you know your partnership falling on your personal return you know what you're getting 13 times more likely to get audited okay fair enough fair enough so I'll take the extra paperwork I got to send to the IRS if I'm 13 times less likely the ad audited okay okay but unless you like audits so that was kind of a let's say caught it I like that it was kind of it was like a defense and a jab it was kind of like a block job okay you're down I'm like still hitting yeah you're still hitting I mean you're kicking me you're kicking me where's the ref in here listen you're supposed to be the ref okay all right all right fair enough okay well I will throw this out with an LLC you can file a two-member LLC so let's say you were even a husband wife or you have Partners in a rental property you're going to have to file a two-member LLC which is a 1065. and guess what Mr Sorensen my chances of an audit risk go down by the same 13 to 15 or sorry 13 to 15 times or 13 to 100 to 1500 less chance of an audit with a two-member LLC so if I want the audit protection yeah you can still get it I like it and you know when this happened for some of you out here that was interesting I had a client that had a rental property in I don't know it was Minnesota or somewhere and they have one rental property in Minnesota I remember they they and they were so excited to show me they had like 30 000 in travel expense I'm like it's one rental what the freak is going on and they go you know wink wink well it's where grandma lives and we check on Grandma when we check on the rental so it's a write-off right and technically it is true every time you go to town and you're going to meet with your friends you know where do they stay well half the time it was airfare I think too but they were like you know but but it's true if you fly across the country to go check on your rental property and meet with your tenant your property manager that is a legitimate write-off but just because you can do it doesn't mean you should it's got to be reasonable and necessary well it still I mean you could I mean they may be able to argue that all day long but they're gonna you still have to throw away thirty thousand dollars is is the is the juice worth the squeeze okay so that's what I'm trying to get at you know like you could write it off but here's the old question yeah the age-old question and uh you know you guys know what I'm talking about don't turn the sexual off I'm just saying that ladies and men you know you got it is this guy really worth dating you know or is this woman really anyway we won't even go there but the point is just because you can take a tax right off doesn't I mean you should but what we suggested to them the moral of the story was we did convert it to a two-member LLC I said you got if you're going to be aggressive here and you're entitled to that write-off you might have to defend it and you can defend it I don't know if you want that fight yeah but let's do a two-member LLC and by doing a two-member LLC they reduce the chance that the IRS even catching it an honest write-off yeah even more so so okay good point yeah so we can we can save some mod at risk yeah okay now let me I'm gonna say something negative about the S Corp well I've got another one I know because you've got to say it you got to post in a few spots here I'm trying to like you know there's like some good PR you know just get some bad news out quick okay all right well I've got another one okay hit me I'm gonna hit you I don't need you to help me out in this fight I got you I got you I own you okay s Corps under state law have to do minutes every year yeah and so you know what I as an LLC don't even have to I might not even do my minutes because I don't have to but your S Corp has to so your S Corp there you go yeah I don't know I buy that one all right let me I don't know I'll get it on the table block you know okay um well here's the thing with the S Corp it is true in the statutes it says you need to keep an annual set of minutes at a minimum now every entity has to have a renewal for Most states where you've got to file a renewal to the state to say hey we're still in business here here's my fee to the state and then you're doing your minutes you know what I mean but then but llc's for the most part still got to do that annual filing well we do a company compliance service at Main Street business and we've been doing our Law Firm for years where we do it for you it's only 150 bucks we take care of it for you we do your minutes we do your renewal for you so you don't even got to worry about it and you know what there's still stuff you got to do with the LLC anyways if you want asset protection in an LLC oh you should be doing your minutes there's a good counter blow I was waiting for that counter blow yes you should be doing them anyways yep now that is a that is a misconception though because you'll see a lot of people online oh do the LLC because you don't have to do annual minutes no when people get sued and you're trying to say hey you can't sue me you can only sue the LLC there becomes a time where the the plaintiff might say ah I want to get to your personal assets I want to make sure you really treated this LLC like a separate business what do people do they have a real business they file they do minutes yeah and I know I admit cases that'll come out I knew that that was a long shot you know okay I'm you may have deflected that punch because uh just because your dentist uh doesn't require you to floss doesn't mean you shouldn't floss yeah and so same story just because the state of Arkansas doesn't require you to do minutes for your LLC but they do for corporations doesn't mean you're off the hook yeah and you know nine out of 10 lawyers recommend you do minutes once a year for your LLC that's true yeah and let's do the dentist yeah and that other lawyer I mean he's a you know let's be honest you know that's true that's true so um you know um that uh is such a good point we need to at least make that for everybody um for both the LLC and S Corp sorry a little digression because whether you do an LLC or S Corp both number one purpose before we get to the tax issue is is to create that barrier of protection and amenity possibly some uh privacy possibly tax savings but number one first and foremost if you're creating that veil of protection so we both have to admit I think that the setup has to be proper minutes every year have to be proper make sure you're paying the fees to the state and we go back to that company maintenance program little uh spoiler alert heads up next week we may be talking about that a little more in depth and there's a special coming people you may need to get your entity cleaned up so yeah analyze your business structure did you do it right maybe you need some new stuff and Improvement a tune-up we don't know we might have a special for that um okay you still have a exposed area in the more exposed areas but I like to just get it out on the table so I don't have to like you know take the punch yeah so I don't have to take the punch okay all right what do you got what are you feeling awkward about s Corps just aren't great for Partnerships ooh you got Partners we don't love I don't love having partners in an S corp I got an S corp Mark's got an S corp we do not have one S Corp we actually use an LLC we excuse limit liability partnership for our law firm and that is that the partnership entity that receives the income pays the employees pays all the expenses and then it sends profits down to Mark's S Corp and it sends profits down to my S Corp and then we're doing our own thing on our escorts because s Corps are clunky for Partnerships how much payroll are you taking how much profit are you taking on the K1 the tax strategy of saving on self-employment tax Consignment sometimes get clunky plus we just like have our own entity to do our own things I want to buy a laptop you know um Mark doesn't want to we're both terrible Fighters because it's embarrassing that you had to expose yourself there so I'm gonna okay I'm gonna meet you quid pro quo here you could have thrown a couple of fast punches okay Matt is correct we do not want to use an escort for a partnership and I was going to say uh the the drawback of an LLC in a partnership is there is no ability to save on self-employment tax so don't take Matt's statement that oh use llc's for Partnerships is to get all in though because it's not I have to concede and say Layer Two needs to be that S Corp level so I guess that's correct teams there I don't know I mean maybe we're both lovers not Fighters yeah we want to get along LLCs and S Corps can play together I tell you what it is the reality is it's not LLC versus S Corp it's when to use one in the right situation they can be in harmony they're not they're not against each other and they can be used together hey can we queue up a little Karen Carpenter can you could you be playing you know a little Tommy was it Tommy Boy you know they're driving in the car singing a little Karen Carpenter I don't know that song okay we're gonna get it we've got to get the studio on that yeah that's Tommy dirt you know okay anyway so we're having a Love Fest now we went from Friday yeah we're Apollo Creed and Rocky hugging after so grateful for the fight what if there was a world where llc's and S Corps could live together oh man in Perfect Harmony let's Feed the World okay now all right a couple other points here okay I wanna I wanna give it another jab in here so I think the LLC is nice because here's an important Point people when you set up your LLC with the ability to change the character later to an S corp if you need it the LLC name does not change you may still be green tree Enterprises LLC and then behind the scenes you're now an S corp your EIN stays the same your company name stays the same your bank account stays the same you don't even need to tell the bank and so um where this hap where this is helpful and really there's many of you listening or watching here on YouTube if you're a brand new business owner and you're not sure what your income level is going to be this year in 2023 pull the trigger now get the LLC going our attorneys will help design your Trifecta put it in perfect harmony for the future then later in the year when you start making money we can backdate it into an S corp if you don't have an LLC now you can't back date and so that that LLC it becomes S Corp Insurance yeah I like to call it that I like that so once again you can you can get over to the cool party the escort party yeah that's true true um well let's this is I'm coming on your team for a moment here because I got I'm run out of S Corp arguments because the big one is really saving on self-employment tax that is why you do an S corp but you know what if you got rental properties do you need that you don't pay self-employment tax on rental properties anyways why get an escort in the mix also s Corps have lost restrictions on rental properties so we love llc's for rental properties so for any of you Real Estate Investors that are buying Buy and Hold real estate you're not even thinking S Corp you're in the LLC Lane you need it for asset protection um and you're out of it you don't have self-employment tax anything you're just paying income tax on the rental income um and if you know obviously you're taking all your write-offs and depreciation and when you're selling the property you have capital gain income there's your self-employment tax Medicare on that either you know I'm really disappointed I thought I left myself exposed I set you up for a punch I left I left down my I put down my guard for a moment is this this is second edition okay which chapter is on four Oh chapter 19. this is Matt Sorensen's book yeah is playbook for fighting I'm going to pull out the his own Playbook chapter 19. self-directed solo 401ks are based on your payroll for maximum efficiency so I thought you were going to go with quoting your own book having an S corporation is ideal for the solo 401K so you can get the maximum contribution I don't know I just fell into my trap there right in the last round I was like on the ropes do I set myself up and here I'm coming right through no I love that great Point um and most of our clients that are doing a solo 401K we have thousands of them here at directed Ira we set them up in the law firm with the plan handle the accounts that directed Ira create one-two punch there it's a lot more boxing analogies but um yeah that's the ideal entity so for and that's like for any of you solopreneurs making 40K or more net a year the S Corp is your perfect entity and the solo 401K is your perfect retirement plan that's a great combo we have thousands of clients in that structure and you don't want to do that with an LLC you don't because yeah your your con your match from the company is going to be less with an LLC solo because you can't take a W-2 from an LLC unless you have the S election so the you get a five percent increased bump in your solo 401K match once you're an S corp and so that's kind of the little subtle trick and a lot of old school accountants forget that that the solo 401k or the sep really equates to a 20 match where with the solo 401k and an S corp you get the 25 match so it's it's just powerful you know what we need to still do though that we haven't done yet we need to beat up the C Corp oh my God you know Nacho Libre sure some of you might say what about the C Corp guys yeah are you like going to be a publicly traded company do you have to be a C Corp for your business don't be a C Corp you're going to pay more tax double taxation you're going to pay corporate tax they're going to pay tax at the individual level that tax rate is higher than any individual bracket so just avoid the C Corp never do it for real estate you're crazy every every year or two at six probably every like six months we run into a client has a lot of real estate and a C corporation and you know what we're like the 100th Law Firm or tax professional they've called to figure out how to get out of it because they know it was the dumbest thing they've ever done yeah and they got taken advantage of usually it wasn't even their own idea they got sold it so the C Corp is kind of like that fighter they throw in the ring and and we just get it beat up on them throw me a folding chair I'll just hit it over there you know let's just tag team him um now here here's what never wins you know you never always gets beat up and now we're going to come together with the perfect plan here in a moment that's going to be the climax of the show so don't go anywhere some of you might be like I don't know if I like this format well hopefully you know maybe you'll learn something new here let me throw out um another uh interesting point when you start to look at this dynamic between the LLC and the S Corp I forgot what I was gonna say to be honest the trifecta you got to get in there I had a really insightful comment okay anyway I think both of them are tools that can be used in different instances um and so oh I remember now and so by beating them up I hope you can see some of the weaknesses benefits and limitations of the different entities that was the purpose of all this yeah you know not to like you know okay I remember what I was gonna say I gotta remember I bought you some time there yeah you bought me some time maybe our studio the producer just doesn't take the time to edit that out maybe he will so okay here here's where I was going to go on the C chord point now some of you that have been following us know that uh this year we've launched this Main Street certified tax Pro Network where we are helping train enrolled agents CPAs financial advisors Business Consultants attorneys around the country on real world Street smarts Tax Strategies there's no one else out there doing that this is a main street CTA program certified Tax Advisor program you're gonna love it you know what we talked about Tuesday in our weekly training when you join the program you get a weekly training where we all collaborate the attorneys and CPAs and enrolled agents the C Corp really was the highlight when it comes to medical expenses there's a lot of benefits when you have a C Corp with a couple or a single individual maybe they have employees in their main company they've got a discrimination issues when it comes to not including employees in an HRA the seed Corp can be a really nice escape hatch for someone that has a lot of medical expenses and they're single and they want to try to write those off the C Corp is that one place where it really has a good spot to be yeah it's got it's got its limited scenarios but you know what for the typical Main Street business owner entrepreneur small business owner real estate investor C Corp is not your game you're going to pay more tax it's it's just it's not your game and the problem is people get out there Googling and they're like well when Uber started they became a C Corp you know everything they're going to be the next Uber it's like okay well they had an intent to be a publicly traded company they had all these this startup funds that required them to be a C Corp so um so just be careful in getting like the big Fortune 500 advice of what your entity should be that's not for you that's not small business you're not going to get all those benefits that they're going to get and they're doing it a lot of times for other reasons so llc's s Corps even though we are fighting over them here that's what you're going to be using in small in the small business entrepreneurial space yeah so I'm gonna I think we can bring this around here I want to here's the from my position I think we've argued a lot of the hot button topics so we could get into some technical issues maybe but here's the main takeaway I would say 80 I want I'd like to say 90 but I'm going to go with 80 percent of our clients use the one-two punch to bring it around to our boxing analogy they have an S corp for all of their ordinary income operations online sales Consulting affiliate work products services and S Corp is the perfect fit for that maybe a solo 401K is a little added benefit and then on the right side of the equation they have their LLC for the rental properties you might be using an LLC with your Roth IRA or your 401k to do some additional investing the LLC oh I should have used that one the LLC can be used as a structure with retirement accounts the fight's already over so oh yeah yeah we can't throw a punch out for the finals you do you did in what was the movie with Clint Eastwood and he directed what's her name that she does Hilary Swank Swank yeah yeah she'd won the fight and that girl punched her and she broke her neck on the chair ah remember that that was terrible end of the show I hated it what was the name Million Dollar Baby Million Dollar Baby oh sorry if you haven't seen that yeah totally ruined it wasn't the movie is 20 years old whatever okay so here's the point people if you're a business owner if you're an investor if you're needing someone to bring this all together that's what our tax lawyers do at k camps lawyers are certified Tax Advisor Network they're trained on this to help work in conjunction with the lawyers to bring together your plan you want that one-two punch that's what's going to make you most effective in that bar fight this weekend Tristan you need the one too because yeah that bar fight's going to happen you got to go one two yeah you need both you need both you need the escort analysis I'd say 80 of our clients use both yeah yeah you need I love it and um many of you know the trifecta and just if you're like man this is my first time hearing these guys and you're learning about the business entities and we have separate episodes just on the LLC separate episodes just on the S corporation separate episodes on what we call the trifecta which is understanding how they work together when to use which separating your business I'm in operations from your assets and Investments coordinating your estate plan so there's lots of important ways to think about these and how they come together so just know we got a lot more content on that if you just kind of this is your first exposure yes oh and you know what we did this morning we do two trainings a week for our certified Network this morning one of the questions um a CPA had asked I mean this is where really you think all of us accountants and lawyers we learn this in school or in the CPA exam or the bar exam you don't you learn it out on the streets well we're the only ones teaching street fight taxi techniques out here so um uh on our call this morning a CPA asked well I didn't think of revocable living trust could own an S corp but yes it can the IRS is allowed for a see-through grantor trust which an S corp is even on the 2553 we'll list the trust with the uh one of The spouse's social security numbers on this second page of the 2553. so for you accountants out there that Trifecta is really comes together with that revocable living trust owning the S Corp and the LLC bringing it all together because I hate to tell you someday you're gonna die your clients are gonna die and you don't want to have a train wreck with a disorganized business structure so make sure you in bring it all together and if you need a console our links are down below the lawyers are out maybe a week and a half but they'll build a plan for 2023 get a plan for 2023. yeah well thanks guys hope you enjoyed this episode of the mainstream business podcast make sure you're subscribed you give it five stars you like wherever you're at do something positive don't be a fighter you love her you love her yeah let's make the world a better place what was it we're gonna feed the world or yeah it was some song recorded we're we're dwindling here yeah we're going down in flames here yeah it's a Million Dollar Baby I'm about ready to hit my head on the chair thanks everybody we'll see you next week for another episode of The Main Street business podcast keep living the dream

Channel: Mark J Kohler

Views: 19,682

Keywords: * #Business Taxation, * #Small Business Accounting, Business Taxation, Small Business Accounting, Pass-through Entity, Small Business Ownership, Tax Planning, S Corporation, Limited Liability Company, Business Structure, Legal Entity, Business Formation, Small Business Taxes, LLC vs S-Corp, tax, small business, 2. Business structures, 3. Entrepreneurship, 5. Business ownership, 8. Powerhouse business structures, 9. Benefits of LLC, 36. Small business advice

Id: Y5AeYFPv4aw

Length: 30min 5sec (1805 seconds)

Published: Fri Feb 24 2023