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Tax Difference between LLC and S-Corp - LLC vs. S Corporation explanation (FREELANCE TAX & 1099 Tax)

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Best LLC vs. S-Corp walk through on the internet! Follow us at: Twitter - https://twitter.com/feedbackwrench Facebook - https://facebook.com/feedbackwrench Instagram @feedbackwrench What's the tax difference between an LLC and an S-Corp? What's better, an S Corp or an LLC? How to convert to an S Corporation? Are there tax savings when you become an S-Corp? What business type should I be? How to choose a business type? There are dozens of questions that people have concerning their business entity type. The bottom line is that people are usually trying to pay their fair share and not a penny more - that's the most important thing to them. If you're looking for tax planning advice, ways to reduce your taxes, legal tax loopholes, the best tax loopholes for small business or the best tax write offs for small business - the foundation starts with your business entity type. You should make a wise decision about becoming a limited liability company taxed as a sole proprietor or an S-Corp, because it might save you in self employment, social security and medicare taxes. Social security taxes for an S-Corp are important to figure out! So is figuring out the medicare taxes on an LLC or an S-corp. We hope this video helps you out a ton!
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Text Comments (270)
Salvador Nobre Veiga (20 hours ago)
what happens if we have more than 1 member in the LLC where let's say is a 50/50 split. And the other member is a non management member - silent partner/member. They can have 100% disitribution without salary?
booger king (9 days ago)
Are distributions the same as dividends?
FeedbackWrench (9 days ago)
Yeah
Ryan King (10 days ago)
The IRS is crap and is so screwed up.
Ryan King (9 days ago)
I agree, I have also heard that taxation is an incentive to provide something beneficial to the community, in return you get lower taxes. Examples such as jobs, housing, benefits..
FeedbackWrench (9 days ago)
Taxing production..... Doesn't stimulate production. When we want to discourage tobacco, sugar and other things we tax it... So what does taxing employment wages do? It sure doesn't encourage the behavior of participating in production
A Donttrip (17 days ago)
Lol paying taxes is sooo unfair say the very same Morons who took us to iraq and led our country Into an endless of debt to sh*t nations, pissed off the world, and recently elected a loudmouth clown.
FeedbackWrench (16 days ago)
Sorry man, it's not even close. Defense spending is out of control, but entitlement spending is the real debacle, https://www.federalbudgetinpictures.com/how-the-budget-has-changed/ and it's not "paid for" because of the failure of nerve on both Democrat and Republican side to readjust the payout rates. Politicians love sugar daddy politics where they give things to people in exchange for votes. Trump is obviously a blowhard in many ways, but his tax and regulation policy is spectacular if you care about the economy and reducing bureacracy. So I'd say your right.... But you can't complain about defense without showing how the bureacracy and overall entitlement situation has attributed to the debt.
JessieJ (26 days ago)
#TaxationIsTheft
FeedbackWrench (23 days ago)
It does seem.... Well, immoral to take things from people at the threat of prison..... Love our liberty loving fans!
De ViceCrimsin (29 days ago)
Is it safe to assume that a minimum wage salary would not work?
Spartacus547 (1 month ago)
I guess Google CEO has to take a reasonable salary of 10 billion dollars a year just so that they will pay their taxes
Spartacus547 (1 month ago)
I'm laughing my ass off at this how much does Google pay? Oh that's right 0%
FeedbackWrench (1 month ago)
Yeah - making the tax code complicated means that only the wealthy and well-connected are able to manipulate it for their own benefit. The answer isn't to try and tax our profit-making machines (our employing companies) - but to increase overall economic activity in order to cause more taxable transactions can occur. Incentives matter a great deal.
Alec K (1 month ago)
No wonder why CEOs get paid $1 salary and get zillions of stock shares
FeedbackWrench (1 month ago)
? How does small business S-Corp tax strategies have anything to do with C-Corp stock options? Sorry Alec, this is not even remotely connected.
Popojuju17 (1 month ago)
Extremely helpful
Flipbank (1 month ago)
Don't you have to pay a Corp tax on the $100k before you account for the distribution? The IRS doesn't let you take an untaxed distribution
FeedbackWrench (1 month ago)
No, in the s Corp, you are mitigating self employment tax, not federal or state. The Medicare and self employment taxes
Flipbank (1 month ago)
Right. But wouldn't the federal tax on the distribution from the pass through (given that the person has no offsetting deductions like real estate) make the overall tax burden the same?
FeedbackWrench (1 month ago)
In an S-Corp, the distribution will still PASS THROUGH to the personal tax return, where the owner will pay state and federal income tax. THere is NOT a corporate tax, that's a C-corp.
Ernest Reyes (1 month ago)
Nice, I really love the information
itzKal (1 month ago)
I was excited about creating a company but finding out about NY's publication requirements really discouraged me from forming an LLC. It's an unnecessary obstacle since (a) it'll be online so posting it in two newspapers (1 daily; 1 weekly) for 120 days is redundant; (b) it's really costly – somewhere around $1,800. It's overwhelming....
FeedbackWrench (1 month ago)
itzKal bureacracy is the enemy of production. These super bureacratic states keep making it harder and harder to create value in the economy which only protects the existing cronies. It's too bad that NY is so concerned about choking the hen to get more eggs, rather than nourishing it with a friendly and anti-bureacratic environment.
Caleb Turner (1 month ago)
So now I’m confused i heard it was better to put your earnings in an LLC account rather than personal account and you’ll pay less taxes
Caleb Turner (1 month ago)
FeedbackWrench thanks
FeedbackWrench (1 month ago)
go watch our video called "when not to be an S-Corp" and then the drawbacks of an S-Corp... it will help
FeedbackWrench (1 month ago)
Also, remember that LLC is just the legal entity. An llc can be taxed as EITHER a Sole Prop, or it can be taxed as an S-Corp.
FeedbackWrench (1 month ago)
uffda... you're working with some strange information. I don't even know where to start here. It's a schedule C (taxed as a sole prop) whether you've never set an entity up OR if you're an LLC .... both of those scenarios are taxed as Sole Props. THEN, if you filed to become an S-Corp, you can do what I'm talking about in this video - taking a payroll and an owners distribution to save in self employment taxes. But the scenario you described above is taxed the same way - as a Sole Prop.
Claudemir Martins (1 month ago)
OMG. Best explanation ever. So easy to understand... the vide, the voice, the speed, examples. Really awesome, thanks
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Freedom Influencer (2 months ago)
Thank you for this video! Awesome!
Jaysen Gill (2 months ago)
This does me no good, because all the numbers presented are WAY over what I would be making.
FeedbackWrench (2 months ago)
Then you probably should NOT be an s-corp. Don't become an S-corp, unless the 15.3% savings will outweigh the costs of compliance. Watch the next video called "When not to be an s-corp" and it will walk you through. https://youtu.be/8iJ66O1zAWA
Kelsey Mann (2 months ago)
Great video. Question, if a businessman elects to go with an S-Corp in your scenario, pays himself a salary of $60,000, what happens to the $40,000 distribution? What is a businessman allowed to do with the leftover $40,000?
Kelsey Mann (2 months ago)
Where is the distribution reported on the 1040?
FeedbackWrench (2 months ago)
Kelsey Mann it all florws through to your personal income tax. It's called a distribution vs. salary, but as the owner, that distribution is just yours. You'll pay state and federal taxes on it.
Farhad Kazemi (2 months ago)
What about C Corp? How does it compare in this scenario?
Milo Workroom (2 months ago)
Hi, thank you for your video. What if the LLC is owned by a C-Corporation? In other words, what if the LLC is an Wholly owned operating company. Will the profit be distributed tax free to the parent company? I appreciate your response.
Abe Shudug (2 months ago)
wench lol jk
Crypto Z (2 months ago)
For the longest I've been hearing wealthy people brag about how they don't pay taxes not it makes since
Robert Satrom (2 months ago)
I assure you, they pay more taxes than anyone else. This small mitigation technique does nothing in the grand scheme. It's getting into real estate that helps, but then you're taking all the risk too. They pay taxes.
Michael Plummer (3 months ago)
great video
FeedbackWrench (2 months ago)
Very cool - always interesting to see who we intersect with on youtube. Good luck!
Michael Plummer (2 months ago)
I'm an attorney
FeedbackWrench (2 months ago)
Thanks Michael, do you mind us asking, what line of business are you in?
terence (3 months ago)
what if I as a european resident wants to start an online business in the US?
terence (3 months ago)
is this info still relevant in 2018 with trump admini?
Rev Chris Nelson (1 month ago)
Hey Terrence, you’d better believe that either version of the LLC payout with Pres Trump is still in effect! He has over 400+ businesses and almost all of them are LLC’s. Hmmm.
FeedbackWrench (3 months ago)
terence yep, there's just an additional tax savings because you will write off 20% of the pass through off at the personal level. It got better for you (take a look at our other video about the new tax law)
James Crenshaw (3 months ago)
Explanation is well done. A couple of questions: 1) Isn’t half the SE tax deductible to the owners? So the benefit is not quite as large as depicted? And 2) Isn’t it possible to make a retroactive S election to the beginning of the year, after March 15, with IRS permission, rather than having to wait until next year?
FeedbackWrench (3 months ago)
Yes and yes.
jaime del salto (3 months ago)
But all the dividend you pay to the owner will be taxable when he Do the personal income tax so if I start to sum all the taxes I paid the total will be almost the same Bc we are liking only the company side but what about the personal
FeedbackWrench (3 months ago)
Take the total amount you pay as a dividend, and multiply that by .153. (15.3%), this will show you how much self employment tax you mitigated. WIth the new tax bill, you will have a 20% deduction on your personal taxes - look at the video we made here https://youtu.be/Wt9bNpMRtmQ YOu obviously need to consider the costs associated with an S-Corp, such as payroll, accountant, tax return, etc.
Mfbsmd sifsai (3 months ago)
how is theft legal? shouldnt there be a limit to how much they can take?
Antonio J Maldonado (2 months ago)
Qwerty uiop taxation is theft i always said it
Abraham Muhammad (3 months ago)
Good stuff 👍🏽
David Franco (3 months ago)
I'm getting confused about where you're talking about self employment tax for yourself, I've read you have to pay yourself as an employee and that means paying workmen's comp, unemployment, social security, fica, so could you clarify that?
FeedbackWrench (3 months ago)
Self Employment tax is the term used for all of the social security and medicare tax. All these taxes are referenced with different names which can make them confusing. But because a self employed person will be paying BOTH HALVES Of the social security and medicare taxes (where an employee only pays half) - it's typically referenced as self employment taxes rather than ss and med.
ANDREASRIAL (4 months ago)
Great info, wish You were here in So. Cal. for a personal visit. Thanks.
FeedbackWrench (3 months ago)
Give Nuance Financial a call - 952-892-7723. We have MANY national clients
John Esposito (4 months ago)
No kidding? This is the best country in the World by far. So what we have to pay taxes. Its all part of living here. Because you live here and make money here you need to pay taxes period.
saxonsoldier67 (21 days ago)
Before the taxes established just before World War One, no one payed taxes on their own labor only on investments. At that time the definition of income was changed to include investments and your labor. The government wanted a piece of your earnings, so they redefined your sweat and toil as taxable.
J. Smith (3 months ago)
No one who lived here and worked here payed taxes before 1913. Get informed.
SO S (4 months ago)
It seems like I'm missing something. Isn't there taxes paid on the distribution portion on the S Corp scenario?
saxonsoldier67 (13 days ago)
S corp does create a firewall if you maintain excellent records, separate bank accounts. Many people breach the firewall by co-mingling money in personal and business accounts, which defeats the purpose. Sorry about being stuck in California. You are in one of the worst states for business. Corporate taxes, permits, franchise tax board, excessive regulations, ad naseum.
SO S (13 days ago)
California, and moving isn't an option. We have a storefront. If we're still paying as much taxes as we do as a sole proprietor, at least setting up as a S Corp will help minimize personal legal liabilities as far as I can tell.
saxonsoldier67 (19 days ago)
SO S Are you in a State with income tax? Moving can be a big help. Incorporating is not a magic trick that drastically lowers taxes. There are fees involved to create and maintain every LLC or S-Corp. The example in this video shows a way to minimize the Self Employment tax. You would still pay Federal and State on your earnings. I remember a lawyer/politician (Edwards?) running for President. He received most of his earnings as a distribution to avoid SE tax. In the end, you can only write-off your expenses. You're stuck paying 25% or more of your earnings to the Feds.
SO S (19 days ago)
What about an S-Corp. That's what I'm interested in. Right now we're a sole proprietor and paying taxes out the nose. It's just not working this way.
saxonsoldier67 (21 days ago)
ighir izm As an owner-operator you can either create a LLC or simply file your 1040 return as a sole proprietor. Unless you are running multiple trucks, most O-O avoid the LLC as it is more expensive to create and maintain. A LLC does offer a shield against lawsuits, however, if you are properly insured it should not matter. I use Turbotax software for small business to file my 1040. If you do create a LLC, then you have to insure that you keep separate bank accounts and do not co-mingle your money from personal and business.
Shawna Brookes (4 months ago)
'reasonable salary' -lol sooo subjective to the IRS whose goal is to collect as much money as possible - what a crock of crap - since minimum wage is like 7.50 an hour, that's your reasonable wage. shove their corrupt game back in their face
saxonsoldier67 (21 days ago)
Do so at your own peril. The IRS doesn't play. A reasonable wage would be what someone else makes to do that job in your area. Do it right or be penalized or even jailed. I understand the desire to keep your earnings, but the consequences of not complying by their rules will be painful.
Shawna Brookes (4 months ago)
TAXATION IS THEFT - if everyone stopped paying there taxes in mass, this piece of crap, fraudulent, corrupt government would no longer "own" us like cattle and sheep.
Joshua Bader (4 months ago)
15.3 percent minimum... the tea party revolted for less
FeedbackWrench (4 months ago)
Losing 15.3% of wages is a ton of money, especially when you consider what a dismal return you get on your medicare and social security. If a person earns an average of 70k a year, their payment to social security (12.4%) would be 8,680 a year, or 723/month. IF they do this average for let's say - 35 years, they will have a measly social security check in retirement. BUT - if they invested that 723/month for 35 years in a low cost index fund from vanguard, and averaged 8% a year, they would have an account totally $1,310,000. Do the math of what 30 years of retirement. Assuming that a 4.5% withdrawal rate would be safe, (investment earnings would be about 4.5% so the principle never goes away) - you'd be able to pull about 59,000 a year from an account that size. That would be replacing about 80% of your earnings... BUT Social security, as illustrated here https://www.fool.com/retirement/2016/11/28/how-much-will-i-get-from-social-security-if-75000.aspx , only replaces about 38% of your income...... and you have NO access to principle. The bottom line is that social security is a horrible return on investment, and the government has mismanaged it for decades.
Joshua Bader (4 months ago)
Wow. Taxation is theft
thefunkybeat79 (4 months ago)
I LOVED this video. Finally someone took the time to illustrate and spell this out for me!
FeedbackWrench (4 months ago)
We appreciate the feedback! We'd love it if you shared this to your social media, on your company website, or any other place! Trying to help more people clearly understand what options they have to keep MORE of their hard earned money.
Alvin Kovacs (4 months ago)
So if the money earned is from a rental property, couldn't this all be avoided by not having either an llc or an S corp.
FeedbackWrench (4 months ago)
Yes - if you see our video "when not to be an S-Corp" which is found https://youtu.be/8iJ66O1zAWA you'll see that passive income activities, such as Rental Real Estate, should NEVER be put in an s-corp. YOu are TOTALLY correct!
Rose Marie333 (4 months ago)
What about ss tax?
Robert Satrom (4 months ago)
Danielle OKeefe ss is the social security tax portion of self employment. Self employment is both ss and Medicare taxes. That's what we're talking about here.
King J (4 months ago)
Thanks
FeedbackWrench (4 months ago)
Absolutely - good luck with everything!
shihster88 (4 months ago)
What the hell is a reasonable distribution
FeedbackWrench (4 months ago)
HAHAHA - Good question. There is no reasonable DISTRIBUTION - it would only be a reasonable salary. If we said reasonable distribution, it was a mistake. https://www.irs.gov/businesses/small-businesses-self-employed/paying-yourself Remember
Capt. George (4 months ago)
Add workers comp and your back to $15k for the s-Corp.
valeria aguilar (4 months ago)
Very helpful. Thanks
Rico (4 months ago)
You should have included what we would pay for payroll taxes as well.
Rico (4 months ago)
FeedbackWrench does tax bracket apply for self employed as well?
Rico (4 months ago)
FeedbackWrench sorry, i was confused.
FeedbackWrench (4 months ago)
I'm confused, that's what Self Employment taxes are - Social Security and Medicare, which are payroll taxes.
Kevin Capehart (5 months ago)
I'm currently in the process of starting an LLC S-Corp. I am not expecting to generate much, if any, profit for the first year or so. How does this work with paying myself a "reasonable salary"? If the company is not generating income do I still have to pay myself a set salary?
Kevin Capehart (5 months ago)
thanks!
FeedbackWrench (5 months ago)
Kevin Capehart watch our other video called "when not to be an s Corp"
Kory Reynolds (5 months ago)
Other considerations for an SCorp....no real benefit for a passive activity (real estate investing), and no special allocations of income or distributions if you want to introduce new members. Once you are over the social security base one also has to keep in mind that it is a reduced benefit. There are definitely a lot of considerations as you mentioned, entity selections is certainly not a one size fits all scenario.
Kory Reynolds (5 months ago)
Long term rentals I would still do an LLC, short term and flipping SCorp all the way. I personally like 1 seperate entity for each property (for long term rentals /buy and hold) - a very large number of my clients do it this way. This is really just protection from a liability standpoint - ie if someone trips on a broken board on a porch amd break their back (extreme example), they might be able to sue the LLC that holds that one property, but as long as the integrity of the entity was maintained (ie you treat is as a seperate entity), they wont be able to sue and take assets outside that LLC - so your other properties are protected.
lovej418 (5 months ago)
Thats what I was thinking, my mentor has me doing an S-Corp for those reason, rentals and flipping. Some other Investors always do an LLC so I was confused on why when you can grab more benefits with and S-corp . I understand. THANK YOU!!!
Kory Reynolds (5 months ago)
lovej418 For a real estate investment where it is a buy and hold/rent property, I would probably do an LLC or similar and not an SCorp. By nature buy and hold real estate is normally passive and not subject to self employment tax no matter how it is held. An LLC also allows you to be much more creative with the operating agreement and how profit and losses are divided. Also with a partnership/LLC you can create basis with the debt in order to take additional losses - subject to various limitations. If it is a real estate investment where the goal is flipping or short term rental (ie air bnb), it would probably benefit from being an scorp, as income would almost definitely be subject to self employment. In the short term rental case I woulf take a hybrid approach - leave the real estate in an LLC, then have an scorp that pulls a reasonable management fees out of the LLC. Lowers the LLC income, but gives you the chance to protect some from self employment. Note that with any transaction like this, there must be a business purpose (ie seperate the liability of managing from the liability of owning) versus being the goal to only reduce self employment taxes. If your purpose is to wash the income of self employment status the IRS can throw it out. It isnt too difficult to establish a business purpose though.
lovej418 (5 months ago)
So technically for an REI we should use S-corp for better breaks... Correct?
FeedbackWrench (5 months ago)
Kory Reynolds absolutely - good advice
givemetoast (5 months ago)
Very, very well done and clearly explained!!
Fernando Galindo (5 months ago)
Thumbs up for being an elp
Henri Rahmon (5 months ago)
Very good video, HJR Accountancy (Riverside CA)
FeedbackWrench (5 months ago)
We appreciate that He Ro! Good luck!
poohbear (5 months ago)
I heard from my CPA that if i change to s corp i have to pay 4-6,000 in tax fees to my CPA so she advised me not to do it until my net profit is high.
FeedbackWrench (5 months ago)
While you CAN get away with intuit payroll/QuickBooks solutions and the turbo tax pack - I find you’ll usually want an accountant and tax planner which the fees would be around there. Nuancefinancial.com has one of the best packages for it all and it’s a 500/month for small business package for payroll, tax return, tax planning , bookkeeping and financial administration help. So yeah - you’ll want to wait for net profits to be high enough where your tax savings outweigh the cost of bureaucracy
FeedbackWrench (5 months ago)
poohbear Check out our video called when not to be an S-Corp.
Richard Sheetz (5 months ago)
Question if I’m single, and only make $50 a year on dividend income that’s my only income a year. What’s my taxes like?
Antonio Fernandez (6 months ago)
What taxes does the dividends pay? Do they pay federal & state income tax?
FeedbackWrench (6 months ago)
For the simplest answer - yes, the dividends will be subject to state and federal income tax. Both salary and dividend are.
The thing you didn't mention is that distributions are taxed as corporate income first, then you pay income taxed on them once they are distributed. You're still double taxed.
FeedbackWrench (6 months ago)
respectfully, I'm not sure what you're talking about here. WOuld you take mroe time to explain what you mean here? I talked with our partners, and we can't figure out any scenario where you're statement is correct concerning an s-corp. You seem to be talking about a C-Corp. Perhaps you're not talking about American laws?
Miles Watkins (6 months ago)
So when you do pay your self you stop have to pay taxes on state federal and income( ex the 60000?) Now what is the deal with the 40000? Is that just tax free floating around money for the business ?
spring cleaning (6 months ago)
Nice vid... C-corp with an "S" election is an "S-corp", LLC taxed as an "S" is a different legal animal...
Unbias Sports (6 months ago)
Can salaries and dividends both be paid monthly? or are dividends distributed at the end of the year
Iman El (1 month ago)
Unbias Sports dividens are distributed monthly,quarterly and annually.
FeedbackWrench (6 months ago)
Good question - really it just matters how it works out at the end of the year. What most people do is run a payroll, and then any money they just pull out gets marked as a distribution. You can take as much out whenever you want, so long as you have it all right at the end of the year. Many people will have a consistent payroll, and then an autotransfer from the business account over to their own - and just mark it in their accounting.
Eli Laguna (6 months ago)
I just want to make sure I'm on the right path about my hair cutting S. Corp. I'm also about to start a cleaning business no clients at all I don't know if I should do LLC or Corp. To start
FeedbackWrench (6 months ago)
now, you'll need to get specific counsel... so we're not liable here... but my recommendation is usually to not really worry about the s-corp thing until you reach net profits of about 30k or so - unless you've got an inexpensive option to handle the requirements such as the 1120s tax return, bookkeeping, and the payroll. If you have that all down to an inexpensive system, then there's probably few reasons NOT to be an S-Corp. Remember, there are some drawbacks to S-corps that you want to be aware of. Also, if this inoome is discrectionary - meaning you dont NEED it (sorry if that sounds stupid) - you're self employment income from an LLC or S-COrp can be PERFECT to use in vanguard's SEP IRA or Individual 401k (assuming you have no employees) ALL THAT TO SAY - when you first get started, just go make money and hustle till you hit 30k AT LEAST, then start worrying about it more after that. Legally - get insurance to cover yourself. TheROckINsure.com is an indpendent group i really like.
Eli Laguna (6 months ago)
I made my hair cutting side job in my house S Corp I only show on my taxes 8 to $9,000 a year did I made a right move by choosing for s.corp?? I just paid the $150 tax year but this year I'm doing a lot of write off
FeedbackWrench (6 months ago)
it just comes down to whether or not the tax savings outweighs the costs of your payroll system and the 1120s tax return. So you just have to weigh it out. FYI - If you were to shut the s-corp down, you wouldn't be able to become an s-corp again for 5 years... so don't go jumping back and forth.
Eli Laguna (6 months ago)
S.Corp is better
FeedbackWrench (6 months ago)
almost always! Except: When your business is participating in PASSIVE INCOME - such as rental property.... or if you don't make much money and the costs of payroll, 1120s, and other messing around is not outweighed by tax savings.
ALafosse (6 months ago)
I’m a corporate accountant in florida and this video is the best explanation on this strategy. Trust that I have searched YouTube and there is No video that explains this strategy in an clear and simple way with illustration and examples. Great job👍🏾
FeedbackWrench (6 months ago)
kdude2009 thank you - we’d love it if you’d help us share it and keep getting it on folks websites etc. thank you for the kind words
circusboy90210 (6 months ago)
The moment you mention Dave Ramsey you totally discredited yourself.
FeedbackWrench (6 months ago)
circusboy90210 why
raheem F (7 months ago)
can we do an LLC taxes as a corporation?
FeedbackWrench (6 months ago)
I'm not sure i understand your question, but I'll assume you're asking if you can get taxed at corporate rates...As a C-corporation? You wouldn't want to. Remember, that while all the news outlets are talking about how good the new corporate tax rates are, C-corps are double taxed for the business owner. You want to use a pass through as a small business owner, you are either a Sole-Prop (no LLC paperwork filed) and LLC taxed as a Sole-Prop, or an LLC taxed as an S-Corp. Partnerships are similar to the sole-prop taxation. When you become an S-Corp, you are becoming a corporation, but a pass through corporation.
Chad Foust (7 months ago)
Great video! I just finished The Total Money Makeover by Dave Ramsey and it's funny that you are an ELP. I should not be surprised that this is one of the best explanations I've seen on the topic. Keep putting out this great content, very very helpful
FeedbackWrench (7 months ago)
Nuance had to stop paying the Dave Ramsey fee -which means they lapsed their official Dave Ramsey endorsement as an ELP... but Nuance WAS an ELP at the time of this video.
Virginia Thornley, M.D. (7 months ago)
Wow what a great simplified explanation I was referred to this site from a Physician group. Trying to get more info so I can understand the business aspect before I get an accountant
FeedbackWrench (7 months ago)
That’s really great! Glad it could help.
Junito Punto Comm (7 months ago)
Thank you for this information !! I will do like Mike Bloomberg...my salary will be $1 a year...the other million will be distribution !! Lol
Damion Smith (7 months ago)
Nice breakdown.. Thanks
FeedbackWrench (7 months ago)
Absolutely Damion - appreciate the encouragement and any sharing, helping or subscribing is greatly appreciated. We'll be producing more content for businesses.
gtgeek (7 months ago)
Would the S-LLC’s $40k dividend be added to say the $85k income tax in the earlier example? Meaning S-LLC took the $15.3 to $9.2. What happened the the $17k tax on the $85, does it become X tax on $85+$40?
saxonsoldier67 (21 days ago)
Total tax bill would lower from 33 K to around 29 K. However, it costs more to establish a LLC with separate bank accounts and accounting fees. You might save a little bit more of your earnings depending on your own LLC expenses. This strategy works better the more money you earn.
Rob Satrom (7 months ago)
AWESOME!
Driver Ed (7 months ago)
Thanks for the video ! Hypothetical... say that $100k net profit is reinvested into the business/ remains in the business account ... is that taxed? Or does that technically make it a business expense and it’s not a profit
Driver Ed (7 months ago)
Robert Satrom thanks for the help btw !
Driver Ed (7 months ago)
Robert Satrom it’s taxed even though it’s sitting in the business account for future business expenses. For instance, say I have $100 in profits in my business account at the end of the year. If I don’t spend it, it will be taxed, even if it just stays in my account? But if I instead took that profit and bought $100 worth of office supplies I would have no taxable income ?
Robert Satrom (7 months ago)
Driver Ed yep - it’s taxed.
Jay Gold (7 months ago)
This is wrong. After standard deduction and personal exemption the fed tax on $85K is $14528 on the 2016 tables.
Robert Satrom (7 months ago)
In order to account for state taxes etc.
Robert Satrom (7 months ago)
Jay Gold you are correct - you’ll see we used a round percentage to keep it easy.
Guillermo Vega (7 months ago)
F
SooperMikey (7 months ago)
Lol @ blood boiling
That was a really good explanation - thanks
FeedbackWrench (7 months ago)
Appreciate the feedback
Miles Matias (7 months ago)
What if i have a lot of tax writes offs such as: Leasing a car for business, part of my house square feet being used for business, Donations to a children's hospital, and other write offs? can someone explain that?
Miss Jackie (8 months ago)
How do you determine the taxable income?
FeedbackWrench (7 months ago)
You know, from an S-Corp - it's essentially your net profits (with some write off from the self employment tax your pay). But you should be thinking that it's your net profit pretty much - and then that passes through to your personal tax return.
RoIIingStoned (8 months ago)
Are business improvements tax deductible?
RoIIingStoned (9 months ago)
Are the federal and state taxes on net profits as well or gross profits?
FeedbackWrench (9 months ago)
RoIIingStoned great question but in an LLC and am s Corp, you’ll only pay taxes on the net.
hulkhuggett (9 months ago)
So if my revenue is high enough, wouldn't I still make more money paying myself all the net earnings (even tho the taxes are higher) as an LLC vs only 60% for an s-corp? (My question assumes the gross money has already been used for the business, i.e. advertising, etc.). Thanks. Great video and information!
FeedbackWrench (9 months ago)
Absolutely - good luck and we appreciate the like and follow. Trying to grow this channel.
hulkhuggett (9 months ago)
FeedbackWrench Thanks again for the help!
FeedbackWrench (9 months ago)
When you pull money out of the company by just pulling out- it's essentially a distribution. To make it an official "payroll" you'd run it through a payroll system. IF YOU PULLED a whole bunch out, or NOTHING throughout the year, you'd want to make sure that BEFORE THE END OF THE YEAR, you dove in and made the correct proportional distributions and payrolls....
hulkhuggett (9 months ago)
FeedbackWrench Thanks for the response, Wrench. Great info. So, if you become an s-corp, and you take a salary, what happens in the case of an emergency (or whatever) and you need to get to the company money for personal use, is that illegal? And thanks again!
FeedbackWrench (9 months ago)
No - It's not that you AREN'T paying yourself the distribution. BOTH THE PAYROLL AND THE DISTRIBUTION are income for you! You take home both... the only difference is that the distribution is NOT subject to self employment taxes of medicare and and social security. HOWEVER - they are BOTH subject to income taxes on your personal return. You will pay state and federal income taxes on both. THEREFORE - you will save money with an S-Corp because a portion of your income (the owners distribution or dividend) will NOT be subject to th 15.3% self employment taxes... as you earn above the social security limits of 127,000 - your savings will be that the distribution doesn't pay MEDICARE tax... THE MAIN business that you would want in an LLC is - some partnerships, passive income endeavors...(real estate investment) and capital gains type business.... you don't want to transform certain types of income INTO regular income subject to self employment taxes. It's rare that an S-Corp isn't beneficial...
Andy Griesbach (9 months ago)
What taxes would have to be paid on the distribution and at what %?
FeedbackWrench (9 months ago)
+Andy Griesbach state and federal income tax and you’ll need to lookup your marginal federal tax rate... the scale you’ll find shows that the more you make - the more you pay. From 0,15,25 up to 39% depending on what you make
FeedbackWrench (9 months ago)
Andy Griesbach The income that you take out as a distribution would have to have federal and state income tax paid on it. So you would need to plan for taxes in a holistic manner because both the payroll or salary, and the distribution, and other regular income from spouses or other jobs will flow to your personal tax return and you will pay state and federal income tax
Dee A. (9 months ago)
Can you show how to go through this set up please? Legal Zoom? Accountant?
FeedbackWrench (9 months ago)
Dee A. Call nick at 952-892-7723
Bob Silverstein (9 months ago)
Why are you taxing it as a sole proprietors and not as a partnership with pass through taxation
Fernando Chavez (10 months ago)
Great video and explanation, tone, speed, everything!
FeedbackWrench (10 months ago)
Fernando Chavez thanks! We appreciate the encouragement.
Cee Dee (10 months ago)
Forgive me if I'm wrong but if distribution is dividends, doesn't the shareholders have to pay the taxes for that distribution (or dividends) on their income tax form. So even if you had a $40,000 distribution aren't you missing the part where as the shareholder you're still being charged another tax.
FeedbackWrench (10 months ago)
+Cee Dee yes - but not self employment taxes.
Juan Jose Serrato (10 months ago)
Hello, How can I request a consultation ? I am based In colorado. Thank you!
Robert Satrom (10 months ago)
Give Nick Meester a call at 952-892-7723
Ziad Mustafa (10 months ago)
Thanks for the video. If I have a full time job making $80,000 a year and want to start a business with two other people, what entity do you recommend (partnership, llc, or S-Corp) especially in regards to tax savings? In other words, what will make me more money :)? Revenue may not be very high in the beginning
Johnny Last (11 months ago)
Would an s corp be good for day traders who trade for income?
Due'teron Omy (11 months ago)
Is possible to make yourself an employee of the LLC as you did with the s-corp, or it does not work that way?
+Due'teron if you own the LLC, you cannot be an employee
Haidar Bagirov (11 months ago)
Very nice video ..Tahnk you .... . I have a question if you can help me out: , which type of company would be better for my new business , LLC or C-Corp ? We are starting a transportation business , by investing 150,000$ our own money and getting a loan 650,000$ to purchase trucks . We are aiming at making 300,000$ net profit per year . Tricky part that ownership of the company will be 80% by a foreigner (Nin-US_Resident) and 20% by a US citizen . We currently opened a new company in Maryland State , but I,m reconsidering and thinking of shifting my company to Delaware and opening a C-Corp . Can you advise if we should bother moving to Delaware and and opening a C-Corp , or shall we just do our business from Maryland as LLC , being located in another state for me is not an issue , I just want to choose an option where I would pay less in taxes as per the permitted law and will it be worth it for the profit that we are aiming at . I would really appreciate your advise . (300,000$ profit is just the revenue minus all the expenses , I have not included any asset depreciation or whatever the deductibles mean in this case) so maybe the profit would look less
Exstasy Spice (11 months ago)
I would like to talk with some one from your company, [email protected]
jump on the website and submit a form :) nuancefinancial.com
Robin Patty (11 months ago)
How about liability? I have the training and would like to start a 1 man business as a gunsmith, someone that does repairs or custom work on firearms. Given that guns can be dangerous I want to insulate myself and my personal life such as house, military retirement pay, etc from any liability connected to the business.
Robin Patty I would imagine that setting up an LLC would be important for liability here, but I'm fairly certain that the majority of your risk mitigation is going to come from insurance and that will be tied to your ability to prove that you are obeying best practices. Wilen LLC does provide liabilityprotection, we insisted people realize that the entity will do very little to protect you compared to insurance. Legal contracts will also be extremely important in your case I'm sure
Ts K (11 months ago)
8:27 why would you block out your information with a large icon video link? I can't even read it now.
Good catch, we'll fix
Good catch - we'll fix it
Stay fit and free forever (11 months ago)
Taxes are retarded, I hate entitlement programs!
Knuckle_Bump (11 months ago)
What if the LLC is taxed as a C-corp? How would this sencerio change?
First, there is no "LLC C-Corp" there are LLC's, and there are C-Corps . Second - you would be breaking the law. third = it would be better if you simply asked us what you're trying to accomplish... there are no legal ways to avoid taxes... unless you're a corporate crony with the government and had specific tax law written for you :) What are you trying to accomplish? ALSO - remember that there are millions of people trying to find ways to mitigate taxes - the ever hungry government has cut off almost every route... and has been making it harder and harder to mitigate any taxes.....
Knuckle_Bump (11 months ago)
Let's say hypothetically one worked a job and they had a (legit) small business as well and they didn't want anyone to know that they had this additional source of income, not even government. Using a LLC- C Corp could they keep their income separate from the business by paying for everything and anything in the corporate name and by filling 2 tax returns each year?
You would be a C-Corp then - and there are few reasons to be a C-corp for small businesses. What we've found is that the people who end up as C-COrps, are usually because they used a 401k to invest in the business. We really don't recommend that you use a 401k to invest in a business, but would prefer folks to use a checkbook IRA, or a self-directed IRA. Most of the time when people make a C-corp, it's a mistake - the only bonafide, good reasons we see for a small business to become a C-Corp is when they use a 401k to invest in their business.... which we don't really recommend.
Jeh Rhm (11 months ago)
S-corp didn't pay off for me. It was an expensive lession. I believe you need to be netting $110k + to really benefit. For my business, cash flow is inconsistent. The "estimated tax deposits", required by the State Nd Fed made it too difficult. Accountants fees are higher, as well. At least in Honolulu. Not good model for the average trades person, from my experience. Setting up as an S-corp has more filing requirements; Unlike a sole prop. Then I became dependent on using accounts and a monthly fee. Before, it was just 1/4 ES tax payments and a time $500 fee to an accountant. Where is the savings if your paying $6000 a year to manage an S Corp. Plus annual return fees? BTW: Why did you use $100K, then $85K as examples..
Cee Dee (10 months ago)
The 85K was after he charged himself the 15.3% in self employment
Also - depends on what that reasonable salary is as well. But - you should not pay massively different prices to do an S-COrp over an LLC..... you needed a better accountant or something.
Weird - so, if you were to work with Nuance Financial - depending on the type of sitaution you are in, we'd usually charge like $500/month for nearly everything - tax return, tax planning, bookkeeping and even payroll. That's for couple employees etc. You might have a situation different - but give Nick a call at 952-892-7723. Seriously... you probably got ripped off out there in Hawaii.......
CLOUD WALKER (11 months ago)
Simply excellent! Any additional comment would be superfluous. Thank you for this altruistic advice.
Well we really appreciate the kind words. Be sure to watch out for more content soon. We just released our follow up video - The drawbacks of an S-Corp. https://www.youtube.com/watch?v=Yi37DkCLbkM We think it's worth a watch to understand what unintended consequences you might face
Cash_NYC (11 months ago)
Smart thing to do is hire a payroll company to do the taxes for you & you're business. So that way you'll be paying taxes when u pay yourself
srplouque (3 months ago)
I use ADP
absolutely - great point. Nuance Financial actually does this. You're right when you say you should have a payroll solutoin. Which one do you use? A local company or like ADP, PAYCHEX, or something like that?
65MMREHP (11 months ago)
Great video! New at this. What is a distribution? I'm planning on pulling in about $75k a year and paying myself 40k or so. How do I make a $35k "distribution". What does that even mean?
Martin Egwuagu (5 months ago)
Do you have to save taxes on the distribution part, since it is still money coming in?
The distribution is the non-salary part. usually, what people will do is use a payroll system to issue the salary portion, and you just transfer money out of the corporation over to the business. When you pull the money out, you are essentially taking a distribuion. Logistically, you just need to think: "when I transfer money over from the business account, I'm taking a distribution, and I need to use a payroll system to take my salary portion." People often make the mistake of never running the actual payroll.... If you've not done that throughout the year, you can usually make one big payroll BEFORE THE END OF THE YEAR - and pay in the taxes.... People make mistakes - the IRS wants to see that you're working to do the right thing and paying in.
Filmthechannel (11 months ago)
This information is hotter than the strippers in Vegas.
We don't give you short-term, foolish satisfaction that leaves you frustrated....and broke.... we're more like a wise spouse that sticks by your side through thick and thin.... even when you go bald and gain 100lbs.

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