When NOT to have your LLC taxed as an S Corp | Sole Proprietor vs. S Corporation
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- เผยแพร่เมื่อ 19 มิ.ย. 2024
- In this video I discuss 4 scenarios when you should NOT have your LLC taxed as an S Corporation. Specifically, I discuss the four items list below.
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1. How much profit should you be earning before the S Corporation election makes financial sense. Detailed Video discussing when an S Corp make financial sense: • When Does an S Corpora...
2. How large amounts of W-2 income can negate the tax savings of an S Corporation. Detailed video discussing W-2 and small business income: • Small Business and W-2...
3. What happens when your state doesn't recognize the federal S Corporation. Detailed video on cities and states that tax S Corporations: • Does Your State or Cit...
4. Why passive income, such as buy and hold rental real estate, should not be taxed as an S Corporation. Detailed video on how passive income is taxed: • Why Rental Property In...
Take what you learn from this video and ask your legal or tax professional all of your specific questions. If you want to contact me, my information is below.
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This video was created for informational purposes and it is not to be construed as legal and tax advice specific to your unique situation.
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#LLC #SCorp #Taxes
Thank you so much for the very informative video. I will definitely check the rest of your videos. You have answered so many of my questions. 🙏🏻 Thank you!
Very informative! Much clearer than many other articles & videos I've seen. Thank you!
Well explained and super helpful Navi! You answered questions I had concerns about.
You gave more information than most CPA's would
This video was VERY helpful! Thanks so much. Everything you mentioned was exactly what I was looking for in my circumstance. I make a fairly decent amount of money at my day job but also have made good money this past year in e-commerce. I've been torn because everyone online is mentioning that an s-corp is the way to go. This confirms a lot of my worries. Thanks again for your time.
much wisdom, I’m a young entrepreneur and I notice the things many people aren’t aware of as I navigate through the business world and how I could have messed this up or overdone that. you said some terms business owners likely overlook. There’s more to just having a business and doing what you “think” is right.. we need the definitions and differences/knowledge between simple words. As entrepreneurs we have to look for this knowledge when not taught! Great video!
thank you, I found your video is more deep dive than most of the other videos.
Thanks! The deeper dive is where all the good stuff is.
Thanks for the information. I watched three videos prior to this one. I understood it better after watching your video, especially the difference pertaining to legal structure and income tax structure.
Thanks for the feedback! Glad you are learning and the video was able to clear some things up for you.
just the part about the 137k w2 cap saved my butt with regards to starting an S-corp. Thank you!
Glad you got value out of the video! I explain in detail the impact of having a W-2 job and a small business in this video: th-cam.com/video/1kufkdonBEU/w-d-xo.html
this video is a must watch for anyone starting an LLC. answered all the questions I have been trying to google for weeks
Thanks for the comment and support!
Love all this content! We spoke once and soon as I get my RE business up over 40K I will be in touch. Thanks for sharing all this knowledge!
Thanks Maria - glad you're enjoying it!
Very well presented. Perfect level of information without being repetitive.
Clarified so much - thank you - can't wait to learn even more as a new subscriber!
Glad to hear you’re learning new things. Thanks for subscribing!
This is gold! Thanks for the knowledge!!
Thanks so much for the comment @Stained Glass DIY! Glad you found it helpful!
Great video. Thank for explaining the difference exactly what i was looking for.
You're welcome! Glad you found it helpful.
Thanks for publishing this! Very informative!
You're welcome - thanks for the support!
Thank you for explaining this. Your video is very informative!
You're welcome @Fen K! Glad you found it helpful.
Another factor that makes it extremely difficult to determine the advantage of an S-corp in the QBI deduction. Without the S-Corp, all profits could be eligible for the 20% QBI deduction, but the S-corporation will force you to take some of those profits as wages. So you actually pay a higher tax rate on at least some of your income than you would without the S-corp.
I am so happy to have found your videos!
The feeling is mutual Jennifer!
Thanks man. Read about this concept on White Coat Investor (that mixing a well-paying W2 job with an S-corp side hustle may actually cost you more) and was looking for confirmation. Appreciate it.
You're welcome....I'm pretty sure I read the same article/post on White Coat Investor. This topic is not discussed as much as it should be.
Appreciate the S Corp tip. Im in NYC and couldnt figure out why my CPA told me not to bother with turning my LLC into an S Corp
Thank you Navi you are very helpful and you explain everything.
Thank you Flora! Glad I can help you understand these concepts.
super helpful, these concepts are often so dry and abstract but you make them easy to understand, most of us LLC peeps are better at our skillset than tax law, but that's why we're here to learn! subscribed!
Glad you found it helpful Kimberly and thanks for subscribing!
I agree, this was made to be easy to understand! I am in the process of filing my LLC and this really helped me.
Finally. After a dozen articles and countless videos one that finally makes it all make sense.
Great video in a concise format without a lot of fluff!
Thanks @Tujaze. Appreciate the feedback.
I’m glad i came across your video before fax my SCorp form. I currently own property and rent them
I’m glad too Dominique! Congrats on avoiding a mess.
Point number 4 is huge! That should be number 1 in my opinion. Super helpful. I think I will wait to do the S-corp status, because it sounds like a huge headache.
This video is great! Exactly what I’ve been looking for
Thanks for the feedback Connor, glad you found it helpful!
Wow, I have tried to understand the true meaning of active and passive income for years and this is the first time that it made sense.
I appreciated this video so much. Thanks for this useful information 😊🙏🏿
...and I appreciate your comment! Glad you are learning and it helped you. 👍🏼
Thanks for the videos. Definitely learned alot.
You’re welcome LaMonte. Glad you are learning - that’s what the channel is all about!
Very helpful info! Great explanations. Thank you!
You're welcome, Stephen. Glad you found the explanations helpful.
That was super helpful and so easy to understand. Thank you!
You’re welcome!
Thank you, Navi, very informative. Subscribed
You’re welcome. Thanks for subscribing to the channel.
so informative thank you!!
this is such a great video. Thanks!
Thank you for the great info!
This video is full of useful information. Thank you.
Thanks...please consider sharing with your fellow entrepreneurs because I am not sure this is communicated enough.
Awesome video. Did not know about the passive rental incomes not subjected to self-employment taxes!
Thanks for the feedback @Douglas Gee. Glad you learned something new by watching. I’ll be shooting a video soon on the details.
thank you for those great advises
You're welcome Emmanuel.
Great channel. Thank you for your time
Thanks for the feedback John!
Great video and a lot of good information. Thanks for sharing! Quick question. Would AdSense paid on TH-cam videos be classified as passive with the IRS?
Great question! Unfortunately not, Ad revenue is active income which is subject to self employment taxes.
Great explanation ... especially re: passive income.
Great information! Thank you
You’re welcome Jennifer!
Thanks ! You are a great accountant - I like seeing your type ; it gives me hope for the profession.
Thanks Stacey! Does that mean you're considering being an accountant?
@@NaviMarajCPA I am a CPA & CMA- been an accountant in industry for 12 years - just started at a small firm to try to share my years of experience ( was in sales before accounting ) we will see how it works. I realize my ethical standards are more inline with facts, circumstances, and intent so we shall see how this chapter of advisory services works out🤷♀️
I know what you mean @Stacey...I worked in audit for one of the Big 4 prior to what I do now.
I have had a hard time getting my foot in the door bc I don’t have the Big Four audit experience ... I am not gonna lie.. it is very frustrating for me but I shall keep working hard, learning & one day I will hopefully be where I would like to be with my career. It has been hard to not give up. Some times I feel like the line from the Blade movie - some mf’s always trying to ice skate uphill. Plus, in industry, I have had ethical struggles where my values don’t align with executive level management. So hopefully I can find a work home one day... which is why I always like to give people kudos for not being wishy washy with tax laws & suggesting a person can play the “audit lottery” 😡
I know this video is a couple years old. I have an accountant that recommended me doing S corp. Most of my income comes from what I think of an call passive but still confused as you go over this. I have royalties from designs I have made (print on demand) that I make money on when they sell but other companies do the selling, printing and shipping, I get a royalty. other is commissions from sales from product videos I have made. Again it is on another platform, when someone watching my video and customer buys I get a commission, like affiliate commissions and I get that too. Lots of money coming in from many sources like this.
This was a really helpful video.
Thanks Miss Detroit! Glad you found it helpful!
Thank you got your wisdom
The Best explanation ever.......
Great video. Super simple information that a regular person can understand. Ive been in business for 25 years and am getting hit hard on se tax. If I were to "elect to be a s corp" what implications would it have on my situation if I am planning to slowly taper the business down in 5 years. Currently a LLC with 100k in profit. Have business assets (landscape business), Ive read some info on how those assets would have to be treated if electing to be a s corp and that is confusing as to future tax implications
Very useful information. I know some of my business activities are not subject to self employment taxes so an S Corp tax designation wouldn't make sense. Thank you!
You're welcome!
Very informative. I have been using Sole Proprietorship and using my SSN because of my low gross earnings, etc. I am planning to change to the C Corp as my goal is to acquire and rent out CRE properties. I look forward to viewing your other videos. Thanks
Glad it was helpful!
great Video thanks!
Glad you liked it, Heather!
Thanks for the informative video. Question: I have a full time job, and I trade stocks (day trading). What’s the best entity to form? Thanks in advance.
THANK YOU!!
Great video, in plain understandable English 👍🏾
Thanks for the feedback @Mark Williams! Glad you found it helpful.
Excellent- very succinct video
Thanks Robert…appreciate the feedback.
Hi Navi.. So glad to have found this video. You explained things so well.. I do have a single member LLC in FL and my ex-CPA was "pushing" me to elect for S-Corp in 2021 without explaining anything, so I have to file 1120-S for 2021 tax year.. My activity is flipping raw land on the side. And yes I do have a W-2 of +$130k. I did a deal with some profit (not $40k) on the first year of business 2020 but nothing in 2021. I do own two lots: 1 in FL and 1 in NC. Is this activity considered as Passive income by the IRS? Also if there is no profit at all in 2021, will it be mandatory per IRS to "pay myself"? Will there be annual maintenace fee as well? Thanks a lot for your input!
Thank you for this information. I earn 100k as employee and 100k in my LLC. This suggests just stay under LLC for self employment tax reporting
Hi @Scott Gier. This video may help you further: th-cam.com/video/1kufkdonBEU/w-d-xo.html
Thanks for sharing
You bet! Thanks for taking the time to comment.
Informative. What is the time frame we have as a new business to decide if we want to be taxed as an s corp or not? Is election something we can change from year to year or once elected we can't adjust?
Thank you
Great video!!
Thanks for the feedback!
Thank you!
You're welcome....good luck on those remote controls. :-)
There is no Medicare cap. Just 6.2 soc sec that gets capped.
Out of state Corp does not avoid state tax unless you live there. Your nexus is home state. The other no tax states are chosen for asset protection, not tax unless you have part or full nexus with your business activity.
Great points Hooch!
What a great video! Thank uou Sir. I'm ao confused lol. I have a couple of small rentals. Total rent a year is around $37,000. I pay the "triple net"(long story) 😂. Last year I paid a crazy amount in taxes. After triple net and repairs that $37,000 went down to $22,000. And i still pay taxes. Its pretty frustrating
Thank you for the very informative video. I know you mentioned NYC taking extra tax on S - corp but how about NYS?
You’re welcome. Your question has an answer that changes depends on different factors that I can’t get into here. In general, know that New York requires S corporations to file a New York S-election form to be considered an S corporation to New York. Additionally, New York S corporations are required to pay the corporate franchise tax based on New York receipts (sales).
F yea bro thanks for this. People over here trying to get rich and not share knowledge. You probably paid to receive this info and I cannot be grateful enough. If someone is messing with you in the street i will defend you.
Thank you.
You’re welcome Glenn!
Thank You 🙏
You’re welcome!
i formed my LLC in 2015 and was told by an accountant to set up a sub chapter S. however i dont have enough time to file the 2553 since its Jan 2!
Hi PJ...ask your accountant if he/she can help you file it late. It can be done but some accountants don’t know how or don’t want to file the paperwork for a late S Corp election.
You are a saint!! I was filling out the Form 2553 to elect S corp status and came across your video. I now realize that it makes absolutely no sense for me to elect.... that and the simple fact that the election is not recognized in Texas anyways. Thanks for this video!!
I don't know where you got that information from. Everything that I have researched suggests that Texas does recognize LLC's that elect to be taxed as a S-Corp. Its even an option when filing to become an LLC with the secretary of state.
@@yoddy0 You’re absolutely correct. To clarify, I meant Texas does not recognize the tax benefits associated with the S Corp election. You can definitely elect it however.
@@abreashamsid-deen9524 Oh thank you for the clarification. I have been learning something new everyday after looking into opening a small business myself. Best of luck in your business venture.
@@yoddy0 Thanks! Best of luck on your ventures!
I started a mobile iv business a few months ago. I am completely restructured now. Im doing medical weight loss and all virtual. I have my medical director np pharmacy insurance etc. I run ads off fb and reach clients this way. I finally got a finance company to offer financing to patients.
My issue is im not sure what to do about llc sole proprietor etc. The finance company is asking for business license and ein and as far as i know i have neither. I havent launched ads uet because im waiting for finance as i feel that will be a HUGE hit and will allow the business to really grow.
Good advice and nice to see someone not trying to pitch the S Corp all of the time and potentially cost viewers thousands in more tax. You hit the big one which is maxing out social security tax through other W2 income. However, you miss a couple of other factors why an S Corp might not make sense when you factor these in. Your 20% QBI deduction in a single member LLC will be higher than an S Corp since it is calculated after the reasonable salary in the S Corp. Second, if you employ family minor children in your business, they are exempt from the employee and employer FICA match (15.3%) in the single member LLC and have to pay FICA in the S Corp.
Mr. Maraj I am a Realtor. 3 parts here:
1) The last 5 years I have been taxed to death with an LLC. My accountant NEVER told me about an S-Corp. I paid between 14,000-25,000 each year to the IRS. Mostly the latter. Ughhh
2) I have just moved to another state and will be doing Real Estate as well. I will have to build up my clientele all over again so can I set up an LLC and change and file an S-Corp in a year when I have profits over $40,000? Can you change your filing status from the original? LLC to add S-Corp a subsequent year or vise-versa depending on profits? Toggle between each year-to-year depending on profits?
3) I have been a housewife most of my life so I have NOT paid into SS much except for the last 5 years. Does it make MORE SENSE to continue to be only an LLC without an S-Corp to to ensure my SS for later on in life? I am not married and was not married for 10 years.
Thanks
You’re welcome!
Do you have a video about the difference/benefits of creating our business as a INC S-Corp vs a LLC with S-Election?
No, but there would not be any difference from a tax perspective for the majority of businesses - only legal differences.
Hi Navi, that you for your video. Quick question: What if you have a 9-5 earning 45k per year and a eCommerce side hustle, barely earning any sales or profit because the business just started, what do you suggest I put for taxes? I was trying to add Klarna on my store to collect payments, and It wanted me to list my tax classification. I was thinking to put Single Member LLC, what do you think? Thank you
Can you be my CPA!??! Lol
I can't tell you how many videos I've watched in the last on the subject. I have helped back launching my small business because I'm so afraid to elect the wrong business structure. I live in New York and every CPA that I've spoken to keeps telling me I should elect an s-corp but most CPAs on TH-cam on winning against it until you start making enough money to make it worth it. If I'm being honest the S Corp status makes me nervous it sounds like way too much and I'm terrible with numbers or trusting that the CPA's are pushing an S corp to benefit them in that myself. Any thoughts on that?
How can I get you to be my CPA?! 😊
Ohhh just finished the video, Ill be contacting you! This is AMAZING info. Thank you!!
do you recommend LLC taxed as S Corp for day trading? Thanks
Watched all your videos today and subscribed, just wondering on the high w2 and s-corp, my reasoning for s-corp is to get the sep ira which offsets some tax etc… not sure if this strategy makes sense. I make somewhat the same on net business and my w2 work
There are a lot of rules about this and so you should discuss it with someone. But just so you know, you can establish a SEP IRA and even a solo 401(k) as a sole proprietor.
Love your videos thank you so much they are very instructive, I want it to ask you if it makes sense for me to change to s Corp, I'm currently a soul proprietor owner LLC and with earnings of about 450k, thanks so much
Great video and very informative. What’s the best classification I’m a little confused S-corp or C-corp I don’t really sale a product, I’m an actor working as an artist in different projects? Thank you
Thanks L. Guido. This depends on a few factors. Make sure forming an entity makes financial sense for you....perhaps watch this video to start with...it is entitled, When does an S Corporation make financial sense? th-cam.com/video/QFYFGfHOuwI/w-d-xo.html
The way I had it broke down to me is as a LLC self employed person, you are considered a share holder, and you do not get a deduction for the money you may distribute to yourself. the 15.3 tax is the 7.65% that you pay for the money you distribute to yourself and the LLC is taxed 7.65%. When it makes sense to switch to an S Corp is when you LLC is making 40K and up to 200K and 300K, the deductions you get as an S Corp pay off. As an S Corp I qualify for a QBI deduction which is 20% deduction on business income I don't pay myself. say the taxable income of the S Corp is 100K and I pay myself a minimum of 30%. The remainder of 70K times the 20% is 14K that I just saved myself for being an S Corp rather than an LLC, so now instead of paying Fed and State on 70K, I'm paying Fed and State tax on 56K. and instead of paying 15.3% on Fica, Fed and State taxes on my 30K I payed myself, I'm paying 7.65%, and my business is not paying any taxes on the 30K I paid myself plus the remainder of the 100k of taxable income from my business not only get to deduct the 30K bringing the taxable net worth of the S Corp to 70K minus the 20% for QBI. Karlton Dennis does a really great job of covering all of the pros and cons of both the LLC and the S Corp and C Corp and when it makes sense to become an S Corp and leave off the LLC business. Anyway, for whoever wants to hear.
Thanks for the information. Very helpful. What happens if instead of me having a W2 income, my wife has a W2 income that exceeds 137K?
At around the 5:20 mark I think I heard an LLC does not have to file a separate tax return. If I change a rental property to an LLC are there no tax differences. Still use the Schedule C? If so then no balance sheet is needed just a P&L.
So for rental income, what do you recommend instead of an S-corp?
A very quick question sir, for a start up business that hadn’t made a lot of money yet, should one go in as a sole proprietor first? Would it make sense to establish a single member LLC or even an S Corp or C Corp? Could you direct me to another video, if you’ve made it, which elaborates more on these topics?
Did you see this video? Sole Proprietor vs. LLC vs. S Corporation vs. C Corporation | Legal & Tax Differences….watch that one and then one entitled When does an S Corp
make financial sense.
I did subscribe to your channel...very, very informative. Question. I have a full time job and I also trade in the stock market heavy..do you recommend forming an llc through a holding company to avoid BIG capital gains tax and also, can I pay myself as a stock trader?
I had same question, will be waiting for the response. I would also appreciate if he can touch on income brackets. Thanks!
Is options trading (short term capital gains) considered passive income?
@7:08 you mentioned (under the scenario you gave) "you will lose money if you elect the S corp status because it will pay for the employer portion of Social Security and Medicare taxes."
If you maxed out the wage base from your regular job (ex earned 150K that year) and then your S Corp side hustle wage is 50K, will you have to pay the self employment tax on that 50K as part of the individual return? Or will there be a refund from the IRS for any excess withholdings to self employment tax for the employee/member?
Hey Douglas! Watch this video where I go into that topic in depth. It’s entitled “Small Business and W-2 Job | Does LLC or S Corporation still make sense?” Here is the link: th-cam.com/video/1kufkdonBEU/w-d-xo.html
Very Informative video. Question : I am retired and have passive income through swing trading above 250K what kind of entity can I create to save taxes and I am living in Texas. TIA
Hello and Good Morning. My name is September Dixon, I am interested in creating a trust and need to know how. Also if I should put it under an s-Corp designation if the properties and entities are in numerous states.
What about my wife, who’s a CRNA. She has no overhead except the administration of doing her taxes and legal needs. She makes about $400,000 per year, right now is a Sole Proprietor/LLC. Not an S-Corp, but she’s thinking about making that switch.
What exactly is the objective rubrick to determine if income is passive or not?
What if it’s a holding or management company would it make sense to be taxed as an scorp or become one?
Thx
You’re welcome!
Thanks for the awesome video. If I have a S corp and have profit, Can the single shareowner take loan out of S corp and pay the S corp with reasonable interest each year? By doing that, the shareowner does not need to pay tax on those profit sitting in S corp. Thanks
The loan would not be considered a deductible business expense so the S Corp would still be profitable and you would have to pay federal and state (if applicable) income taxes on the profits.
Is there a deadline when I switch my LLC to a S-corp for this year's income 2023?
I hold a ton of crypto that I earn interest on. Any suggestions on what to form? And yes it’s well over $40,000