Just discovered you at 1am in Birmigham Alabama, currently doing a road trip with my mom. You are amazing! I set up my LLC and just filed 2553 for S corp tax election following your other video. An example on how to run payroll as another subscriber said before it would be wonderful. It is my first time using any of those services and it would make life much easier.
I need a video on: "How to feed your LLC without breaking separation." Why is no one making that? If I have a photograpy business, do I contribute the cameras to the LLC and can I still use them for personal use at Christmas? Does that break the veil? If I buy new equipment does it have to be owned by the LLC? Should I care? Does it need to be listed as some kind of contribution if I bring it into a new LLC or use it in a new LLC? If I sometimes use equipment for personal things can I still write it off on taxes? Or, conversely, if I ty to conceptually hold equip out as owned by me as tools-I-bring-to-work can I still deduct the cost of new equipment somewhere. Sorry, I hope that makes sense. . I had an attorney tell me that LLC's are meaningless to a sole proprietor because an atty would sue both me and the LLC should there be a problem. Considering that advice right now, but I'm still wanting to understand and do this properly in the belief that it helps me stay out of trouble, and that treating your business as a separate entity that must account for itself keeps us focused on creating robust, viable businesses. Thanks for any thoughts you might have on this question.
The short answer is that you can (and usually do) contribute assets and cash to start up a business. The main issue is that it needs to be done per a written agreement between the person and the company. That lawyer is oversimplifying it. Many one-owner businesses do not observe corporate formalities, so the LLC is a waste of time in their case. Also, anyone can sue anyone for anything, but it does not mean they win. Now it can make sense in some cases to just be a sole prop in the beginning to save money and hassle, but it is vital in that case to have written contracts and insurance to protect yourself
Could you please make a “How to create an LLC in 2023” please? Love all of your videos, I don’t own a business currently but plan to finally formalize it come the new year. Love seeing your video quality improve and getting the subscriber count you deserve! You’ve got my business in the future as a Californian as well!
Right the current rule until the end of 2023 is that the first year you don't pay the $800 franchise fee (so if you file on 1/1/23 you don't pay that for all of 2023).
I do my personal banking and business banking at the same bank. So around the first of every month I just transfer money from the business to my personal account. In the future would it be better to write myself a check then? Thank you so much for all the info on your channel.
I think a transfer is okay, since that has an electronic "paper trail" and you are doing it regularly, once a month -- just make sure to note it in your business bookkeeping
I just converted my LLC to be taxed as an S Corp and I am soaking up everything I can read, but I'm starting to feel like I'm in over my head. So your videos are very helpful for me! Right now I am having an issue with the "reasonable salary". I went to the recommended webistes to get my that amount. The problem is that paying myself even the low end of the reasonable salary doesn't leave enough money in the business to pay for business expenses. I know I can't pay them out of my personal account, so what is the proper way to handle that?
If the business is not profitable (or makes a very small amount of money), that is taken into consideration when calculating the reasonable salary -- you don't have to drive it into bankruptcy. Like if the annual profit is $100K, then paying yourself $10K would be unreasonable. But if the annual profit is $10K, paying yourself $10K would make sense.
@@ElizabethPW My business is contracted at $50k, the standard websites say my average salary should be $40k, but I have a lot of expensive subscriptions and licensing fees and taking $40k salary doesn't leave enough for the business to pay those. Would it be OK to take a lower salary if I can show minimal distributions and high expenses?
@@ElizabethPW hello Liz. Hope are you doing well today. Love your channel btw very informative. I have a llc and pay myself a reasonable salary of 50k . I live in taxes btw lol and I do write a check to myself from my business account. Question. Do I need to pay federal taxes twice ? Meaning, one for my salary and schedule C ?
My wife and I are just forming an llc for a travel agency-an additional retirement income generator hopefully. I don't expect to see a profit for several months. I believe we are able to tax as a proprietorship instead of a partnership. How could we tax as an s-corporation in this situation since there would be nothing to pay a salary from, initially?
Typically people don't elect to be S Corp until they are making more of a profit, to make the election worth it from a tax savings perspective. But if someone did elect an S Corp when they made zero profit or very low profit, the IRS doesn't say you should pay yourself a salary regardless -- what they say is a reasonable salary in the sense of the percentage of the profits.
Terrific video! I help my actress daughter for free and I set up an LLC filing as an S corp with her named as 100% ownership (just deposited first checks to LLC business bank account two days ago and she recently turned 18). The LLC was formed through the state of DE. We reside in TX. My actress daughter works on set (as a loan out actor) in other states (not in DE nor in TX) and she teaches acting online. In what state do you recommend setting up the payroll? DE? TX? To do it in TX would be very expensive as a foreign entity. She doesn't earn a lot so we want to keep expenses as low as possible. The LLC registered agent is located in DE and we do have the option to use a business address through them. Thanks for any guidance.
You'd probably need to talk to your tax preparer about what makes sense from a personal tax and an LLC perspective, since there are so many factors involved here. Generally we'd match up someone's state of residency with their payroll, but this is complicated by the fact that she works in multiple states and the LLC is in a different state altogether.
What if you are using your money for equipment etc. So you are taking money out of your personal account to purchase business equipment. Do you put that money in your business account and then spend it?
Yes you would put your money into the biz's account and then use the biz account to pay for stuff. And you would track your money as a capital contribution (or as a loan to the biz).
If I have a rental property under an LLC will I need to pay taxes on that money twice, once from the LLC taking the money in, then again if I take a distribution?
So if the LLC is taxed as a sole prop, then how it works is the tax is on the profits (at the end of the year). Doesn't matter if you take the money out as a distribution or not -- it is just a tax on the profits. The double tax would happen only if the LLC is taxed as a C Corp - then the corp is taxed on the profits and the owner is taxed on the dividends.
I have an S Corp. Having trouble finding a good tax accountant here in CA. Is it really important to have one as an S Corp if I run payroll with one of the major companies and use Quickbooks for bookkeeping?
You can file your own S Corp tax returns -- it is just that there is not consumer software for it, that I know of. So you'd need to file them via PDF in the mail. Check out the forms and instructions www.irs.gov/forms-pubs/about-form-1120-s to see if you think you can handle it okay.
Hello, I had a question that no one seems to be able to answer for me. If I have an "employer" 401K that I set up for myself as a sole proprietor of my business (using the EIN associated with that entity... me, the sole proprietor), but then I transitioned to become an LLC, and I am opening up a different 401K with a different custodian, do I use the old EIN for the new 401K or the new EIN associated with the LLC, for the formation of the new 401K? Many thanks for all that you do!
Hm that is an interesting question -- I couldn't find anything either but it seems like the custodian should know if it needs a new EIN (many times the administrator gets the EIN as part of the set-up process). You don't use the LLC's EIN for the 401k -- the 401k has its own EIN
Regarding the "custodian knowing", my thought was to just set it up online with Vanguard. This is generally done without talking to a flesh and blood human, just the computer. But it prompts you for an EIN. So, should I use the one I have associated with the 401K I am rolling over (not the LLC EIN)? Also, thank you so much for what you do. You are helping a lot of people.
Hi. I have new a business LLC Sole Member and am funding my business right now via (member contribution) deposits to my LLC account through my personal account with a check. I would like to know if I could transfer funds from that same personal account as a (member contribution) and not break the vail. I ask because it would be much easier to indicate on the transfer of funds (member contribution) vs. having to go to the bank often. Thank you.
You could do a transfer but there needs to be a record of what it is for. Maybe there is a memo field on the transfer? Also you would want to be keeping another record of the capital contribution, anyway (on a spreadsheet or in bookkeeping software)
Thank you for this video, I have a question if you are an LLC taxed as a s-corp for tax purposes and you pay yourself a salary but also wants to give your self a distribution how does the IRS know that you are giving your self a distribution so you are not taxed on that money?
When you do the salary you run payroll (with taxes taken out & forms sent to the IRS about it) so they know about that via those employment tax forms. Now distributions are subject to income tax technically because you are taxed on the profits of the S Corp.
If you are filing in a state that has online filing (like California and it's bizfile system), then the system will create the articles of organization when you fill out the form on the website
Assuming your LLC is taxed as a sole prop, partnership, or S Corp, it does not matter if you pull out or distribute the money -- the profits are passed on to you (via Schedule C or K-1) and you pay taxes on them.
Thank you very much for such an informational video. After you file to tax your LLC as S Corp, does your LLC become a S-Corp? If not, what is the difference between LLC taxed as S Corp vs an actual S Corp?
No, the LLC is still an LLC, and all the legal stuff (requirements like operating agreements vs bylaws) is still the LLC rules -- only the tax stuff is different. I think the trouble is most people refer to "S Corp" as if that is a kind of legal business, but it is not -- it is just a shorthand. The legal entities are: sole proprietorship, partnership, LLC, and corporation. There isn't a legal entity that's "S Corp" or "C Corp" -- that's a shorthand. The "S" and "C" is the sections of the IRS tax code that talk about how a business can be taxed. So you can have a combination of LLC taxed as an S Corp or corporation taxed as an S Corp etc.
I am an alien non resident of America and I have a LLC of one member in the state of Wyoming. Can I make myself a salary from the company and it is calculated from the expenses to reduce taxes ?
If you are a non-citizen/non-permanent-resident, then you cannot be the owner of an LLC that's taxed as an S Corp, and that's the way LLC's hire the owners as employees and pay them a salary that's a deductible expense of the LLC. But talk to an immigration attorney to see if/how you could set up your immigration status so your business could sponsor you and hire you (not sure if that will work if you are outside the US, but I'm not an immigration attorney so I'm not sure).
I work as an hvac tech for a company and earn $130k per year. That is more than twice the national ave for this profession. If I go on my own, I need $100k per year to live on. I see the recommendation is to take just 30% of what the business earns. Is there a reason not to pay myself the $100k that I've been making as an employee even though it is double the norm? Is there a tax reason to pay myself the least amount possible?
Hm I think the 30% may have just been a rule of thumb to factor for overhead and employee salaries, but if you have minimal overhead and no employees, it would not apply to you. If you are an LLC taxed as a sole proprietorship, the entire profit will be taxable to you whether you pay it to yourself or not. If you have an LLC taxed as an S Corp, then you have a lower salary (to pay less self-employment-type taxes) and pay the rest of the profits to yourself in distributions.
@@ElizabethPW thank you! Obviously when we first start, I don't expect to earn that much money. It will be painful to start our own business making far less money for a while.
I saw some where that how you set up your distribution and the language of you operating agreement can stop creditors from getting your money… what terminology would I use to look further into that scenario?❤
If you honor corporate formalities, then the LLC can protect the LLC's creditors from getting your personal assets. It does not protect the LLC from the LLC's creditors, though.
Thank you for your super-informative and engaging video! One question--is it important to keep money available in the business checking account (aside from funds to pay for expenses)? Is it bad for my credit rating to make distributions to myself and then leave a small balance in the business checking account? Thanks for any insight you can share!
I don't think that the credit rating agencies look at your business checking balance. Now that bank itself will, when deciding if it will give you credit.
No, if the LLC is taxed as a sole prop, partership, or S Corp, it does not pay taxes on profits. Only a C Corp (or an LLC taxed as a c corp) has double taxation. Also, you are not taxed on distributions -- the IRS does not care if you actually distribute -- you are taxed on profits.
There are certain kinds of trusts that can own an S Corp, including "grantor trusts" (which is probably what a revokable living trust would be, as long as the grantor is living). You'd want to make sure it is set up right, when you are talking to the estate planning or asset protection attorney who is creating the trust
Hi! Love all your wonderful & very informative videos. Have you heard about the new law starting in 2024 called " B O I " ( beneficial owner information) that all. LLC will have to file? If so, can you make a video of it.
Do you have to pay yourself payroll and distributions or do you just pick one or the other? What would be the benefit (besides taxes) of doing one vs other?
If you have an LLC taxed as an S Corp, yes you have to pay yourself payroll as the owner-employee (but you can also pay yourself distributions). If you have an LLC that is taxed as a sole prop, you have to do distributions. The difference is about how they are taxed, with self-employment tax versus not.
I am a lawyer with a new solo practice, for now running it out of my home. It is established as an LLC and I am planning to elect to be taxed as an S-Corp. I wonder if it would be wise (and lawful?) for me to rent the home office space and computers, peripherals, etc. to my LLC, as a way to extract "rent income" from my LLC (thus income not subject to self-employment taxes). I heard once there was an IRS rule against that if I am actively involved in the running of the business (which I am, of course, as a solo practitioner). Any thoughts?
My understanding is that self-rented property is a tax audit red flag. But also my understanding is that there's a rule where the losses are passive but the income is active ... anyway, it is a mess so it only makes sense to do if you have a tax person run the numbers both ways and it is worth it.
Hi Elizabeth- as always - thanks for the great info. We live in LA and get paid as an "S CORP" we're currently off due to Writer's Strike. I'm wondering if we can/should file for unemployment while we wait the strike out. Possible? Benefits? Drawbacks? Thanks again for sharing your knowledge.
My understanding is that in CA, a strike is voluntary so it is not eligible for unemployment, but there are nuances to it - here's some info on that - edd.ca.gov/en/uibdg/Trade_Dispute_TD_60/
Very helpful information. I have one question however. What is if it a passive member who has only invested in the LLC or if it is a member has has only worked a certain amount of time both in return for a "percentage"? Would a passive member or one who performs a limited scope of work still be required to be salary? I would assume that "percentage" would in effect be a salary?
Great question! So the salary requirement applies to the active owners (also called "owner-employees") who work in the business. A passive investor, who is not an officer and does not work in the business, would just get paid distributions. If a member has only does a small amount of work for their small percentage of ownership, they would get a small salary as a part-time employee (your justification to the IRS would be that they are part-time, with evidence showing that) as long as they are working.
Great video! Thank you! Can I set up an LLC (taxed as an S-corp) for myself with two unrelated businesses under it? From a financial perspective (not a liability one), what should the net income be for this to make sense?
Your channel is so helpful. I have a confusing situation where I am mostly self-employed (ebay seller and now will be doing freelance work where someone has already hired me for long-term work/I have applied for an LLC for this) and I also work very part-time for an actual employer. It seems as though turbotax was able to handle the self-employed/ebay & actual employment scenario for taxes last year but dread thinking about next year. I have an EIN that was used for ebay; can I use it for new freelance job/LLC also? I guess I have to have separate checking accts/credit cards for the two self-employed gigs? Wish I could find a trustworthy accountant w/reasonable rates. The S-corp taxation scenario sounds interesting but I don't quite understand it and don't know if payroll software is necessary, as it's just myself. I'm also in CA and canceled a previous LLC within 12 months, avoiding the $800 fee, but don't recall being asked on turbotax if it was the final tax return for the biz, so I'm concerned if I will have a problem later. I did check the website and it said the LLC was terminated. Thank you for your generosity in answering inquiries for people!!
So a new LLC will need its own EIN. If you have an LLC, then it needs its own bank account and credit card for the business(es) under the LLC. But if you have multiple sole prop businesses, they can share accounts if you want. Really S Corp taxation only makes sense when you are making enough money to pay an accountant to figure it out.
@@ElizabethPW Thank you! I have an EIN used for ebay (they require one, even though I'm a sole proprietor there); will my taxes be complicated with two separate EINs (one w/ebay and one w/new LLC)?
LLC/S-CORP should I include the quarterly income tax in my distribution to my personal checking, then pay it from and my personal checking or can I pay income taxes from the business account?
So if your LLC is taxed as an S Corp, then really you personally are paying the taxes. So yes I'd do a distribution for your taxes to your personal account and then pay the income taxes from your personal account
@@ElizabethPW Thank you! I’m a retired CPA running two businesses. I’ve watched a lot of your videos. I subscribe to probably over 100 channels. Your channel will be the first I will become a Patron of.
if i have an amazon seller account under LLC (single member LLC) and a business bank account linked to amazon under the same LLC, when i get the funds from amazon, and never withdraw to my personal account, do I have to pay taxes?
For tax purposes, it is about whether the business makes a profit, even if you don't pay that profit to yourself or withdraw it. It is about profit (after you subtract expenses) not the gross revenue.
Generally I practice business law and intellectual property law, focusing on LLC/corporations, contracts, and trademarks. But I'm no longer taking new clients.
Thanks this video was really helpful but I have a question, if my company makes 2000.00 a month I can transfer all 2000.00 to pay myself? So I keep all that money being a sole proprietor right? I know I have to save for taxes from there but as m I right?
So yes you can pay yourself the entire profit -- make sure to subtract & set aside any expenses from the $2K including taxes (also stuff like -- bank fees, advertising, office expenses, domain name fees, web hosting, etc.).
Hello! If I already have an LLC in the state of Pennsylvania, can I also have one in California? I reside is California. The address associated with my PA LLC is my CA address(does that even matter?)
If you want to change your LLC to be taxed as an S Corporation: th-cam.com/video/-CXGILTIGmI/w-d-xo.html
Also, a video on Payroll services would be awesome. I already trust your word 100% more than any other videos I have found on TH-cam.
I agree about the payroll services, that would be a good video -- I'm adding to the list :)
Just discovered you at 1am in Birmigham Alabama, currently doing a road trip with my mom. You are amazing!
I set up my LLC and just filed 2553 for S corp tax election following your other video. An example on how to run payroll as another subscriber said before it would be wonderful. It is my first time using any of those services and it would make life much easier.
Great to hear! Check out this video on how you pay yourself th-cam.com/video/UTwQ-THsdFM/w-d-xo.html
I need a video on: "How to feed your LLC without breaking separation." Why is no one making that?
If I have a photograpy business, do I contribute the cameras to the LLC and can I still use them for personal use at Christmas? Does that break the veil? If I buy new equipment does it have to be owned by the LLC? Should I care? Does it need to be listed as some kind of contribution if I bring it into a new LLC or use it in a new LLC? If I sometimes use equipment for personal things can I still write it off on taxes? Or, conversely, if I ty to conceptually hold equip out as owned by me as tools-I-bring-to-work can I still deduct the cost of new equipment somewhere. Sorry, I hope that makes sense. .
I had an attorney tell me that LLC's are meaningless to a sole proprietor because an atty would sue both me and the LLC should there be a problem. Considering that advice right now, but I'm still wanting to understand and do this properly in the belief that it helps me stay out of trouble, and that treating your business as a separate entity that must account for itself keeps us focused on creating robust, viable businesses.
Thanks for any thoughts you might have on this question.
The short answer is that you can (and usually do) contribute assets and cash to start up a business. The main issue is that it needs to be done per a written agreement between the person and the company.
That lawyer is oversimplifying it. Many one-owner businesses do not observe corporate formalities, so the LLC is a waste of time in their case. Also, anyone can sue anyone for anything, but it does not mean they win.
Now it can make sense in some cases to just be a sole prop in the beginning to save money and hassle, but it is vital in that case to have written contracts and insurance to protect yourself
Could you please make a “How to create an LLC in 2023” please? Love all of your videos, I don’t own a business currently but plan to finally formalize it come the new year.
Love seeing your video quality improve and getting the subscriber count you deserve! You’ve got my business in the future as a Californian as well!
Glad you have found the videos helpful! Great idea for a 2023 topic, thanks!
@@ElizabethPW is it true that you can file an LLC for free in California right now?
Yes until the end of June 2023 there is zero filing fee. File at bizfileonline.sos.ca.gov/
@@ElizabethPW I heard if you file after January 1st you won’t have to pay the annual $800 fees till the year after or something like that.
Right the current rule until the end of 2023 is that the first year you don't pay the $800 franchise fee (so if you file on 1/1/23 you don't pay that for all of 2023).
Great video! Please make a video on capital gains tax within an LLC/S Corp
Thanks for the suggestion!
I second your opinion. Gusto is a great payroll service!
Great to hear!
I do my personal banking and business banking at the same bank. So around the first of every month I just transfer money from the business to my personal account. In the future would it be better to write myself a check then? Thank you so much for all the info on your channel.
I think a transfer is okay, since that has an electronic "paper trail" and you are doing it regularly, once a month -- just make sure to note it in your business bookkeeping
I just converted my LLC to be taxed as an S Corp and I am soaking up everything I can read, but I'm starting to feel like I'm in over my head. So your videos are very helpful for me! Right now I am having an issue with the "reasonable salary". I went to the recommended webistes to get my that amount. The problem is that paying myself even the low end of the reasonable salary doesn't leave enough money in the business to pay for business expenses. I know I can't pay them out of my personal account, so what is the proper way to handle that?
If the business is not profitable (or makes a very small amount of money), that is taken into consideration when calculating the reasonable salary -- you don't have to drive it into bankruptcy. Like if the annual profit is $100K, then paying yourself $10K would be unreasonable. But if the annual profit is $10K, paying yourself $10K would make sense.
@@ElizabethPW My business is contracted at $50k, the standard websites say my average salary should be $40k, but I have a lot of expensive subscriptions and licensing fees and taking $40k salary doesn't leave enough for the business to pay those. Would it be OK to take a lower salary if I can show minimal distributions and high expenses?
Yes if you have $50K income but let's say $20K legit expenses that you have documented, then you pay yourself what's left (the profit)
@@ElizabethPW hello Liz. Hope are you doing well today. Love your channel btw very informative. I have a llc and pay myself a reasonable salary of 50k . I live in taxes btw lol and I do write a check to myself from my business account. Question. Do I need to pay federal taxes twice ? Meaning, one for my salary and schedule C ?
You were amazing Elizabeth, thank you so much. Your advice helped point me in the right direction!
Great to hear!
My wife and I are just forming an llc for a travel agency-an additional retirement income generator hopefully. I don't expect to see a profit for several months. I believe we are able to tax as a proprietorship instead of a partnership. How could we tax as an s-corporation in this situation since there would be nothing to pay a salary from, initially?
Typically people don't elect to be S Corp until they are making more of a profit, to make the election worth it from a tax savings perspective. But if someone did elect an S Corp when they made zero profit or very low profit, the IRS doesn't say you should pay yourself a salary regardless -- what they say is a reasonable salary in the sense of the percentage of the profits.
Thank you so much! I love your educational videos!
I'm so glad!
Terrific video! I help my actress daughter for free and I set up an LLC filing as an S corp with her named as 100% ownership (just deposited first checks to LLC business bank account two days ago and she recently turned 18). The LLC was formed through the state of DE. We reside in TX. My actress daughter works on set (as a loan out actor) in other states (not in DE nor in TX) and she teaches acting online. In what state do you recommend setting up the payroll? DE? TX? To do it in TX would be very expensive as a foreign entity. She doesn't earn a lot so we want to keep expenses as low as possible. The LLC registered agent is located in DE and we do have the option to use a business address through them. Thanks for any guidance.
You'd probably need to talk to your tax preparer about what makes sense from a personal tax and an LLC perspective, since there are so many factors involved here. Generally we'd match up someone's state of residency with their payroll, but this is complicated by the fact that she works in multiple states and the LLC is in a different state altogether.
What if you are using your money for equipment etc. So you are taking money out of your personal account to purchase business equipment. Do you put that money in your business account and then spend it?
Yes you would put your money into the biz's account and then use the biz account to pay for stuff. And you would track your money as a capital contribution (or as a loan to the biz).
If I have a rental property under an LLC will I need to pay taxes on that money twice, once from the LLC taking the money in, then again if I take a distribution?
So if the LLC is taxed as a sole prop, then how it works is the tax is on the profits (at the end of the year). Doesn't matter if you take the money out as a distribution or not -- it is just a tax on the profits. The double tax would happen only if the LLC is taxed as a C Corp - then the corp is taxed on the profits and the owner is taxed on the dividends.
I have an S Corp. Having trouble finding a good tax accountant here in CA. Is it really important to have one as an S Corp if I run payroll with one of the major companies and use Quickbooks for bookkeeping?
You can file your own S Corp tax returns -- it is just that there is not consumer software for it, that I know of. So you'd need to file them via PDF in the mail. Check out the forms and instructions www.irs.gov/forms-pubs/about-form-1120-s to see if you think you can handle it okay.
Great videos. Do you recommend Uber drivers to open an LLC? If so, what’s the advantage.
Depends - here’s a vid I did on sole prop vs llc th-cam.com/video/5ClAJYWTLRA/w-d-xo.html
Hello, I had a question that no one seems to be able to answer for me. If I have an "employer" 401K that I set up for myself as a sole proprietor of my business (using the EIN associated with that entity... me, the sole proprietor), but then I transitioned to become an LLC, and I am opening up a different 401K with a different custodian, do I use the old EIN for the new 401K or the new EIN associated with the LLC, for the formation of the new 401K?
Many thanks for all that you do!
Hm that is an interesting question -- I couldn't find anything either but it seems like the custodian should know if it needs a new EIN (many times the administrator gets the EIN as part of the set-up process). You don't use the LLC's EIN for the 401k -- the 401k has its own EIN
Regarding the "custodian knowing", my thought was to just set it up online with Vanguard. This is generally done without talking to a flesh and blood human, just the computer. But it prompts you for an EIN. So, should I use the one I have associated with the 401K I am rolling over (not the LLC EIN)?
Also, thank you so much for what you do. You are helping a lot of people.
Hi. I have new a business LLC Sole Member and am funding my business right now via (member contribution) deposits to my LLC account through my personal account with a check. I would like to know if I could transfer funds from that same personal account as a (member contribution) and not break the vail. I ask because it would be much easier to indicate on the transfer of funds (member contribution) vs. having to go to the bank often. Thank you.
You could do a transfer but there needs to be a record of what it is for. Maybe there is a memo field on the transfer? Also you would want to be keeping another record of the capital contribution, anyway (on a spreadsheet or in bookkeeping software)
Thank you for this video, I have a question if you are an LLC taxed as a s-corp for tax purposes and you pay yourself a salary but also wants to give your self a distribution how does the IRS know that you are giving your self a distribution so you are not taxed on that money?
When you do the salary you run payroll (with taxes taken out & forms sent to the IRS about it) so they know about that via those employment tax forms. Now distributions are subject to income tax technically because you are taxed on the profits of the S Corp.
Thank you! Do you have a video on how to create the articles of organization or a reputable website that would do that?
If you are filing in a state that has online filing (like California and it's bizfile system), then the system will create the articles of organization when you fill out the form on the website
How would you pass thru royalties earned by the LLC (not as salary, for example)?
I’d ask that question to an accountant or your tax preparer so it has the effect you want
If I don't take any owner distributions from my LLC and just keep it in the business checking, do I still pay self employment tax on that income?
Assuming your LLC is taxed as a sole prop, partnership, or S Corp, it does not matter if you pull out or distribute the money -- the profits are passed on to you (via Schedule C or K-1) and you pay taxes on them.
@@ElizabethPW Got it. Thank you!
Thank you very much for such an informational video. After you file to tax your LLC as S Corp, does your LLC become a S-Corp? If not, what is the difference between LLC taxed as S Corp vs an actual S Corp?
No, the LLC is still an LLC, and all the legal stuff (requirements like operating agreements vs bylaws) is still the LLC rules -- only the tax stuff is different. I think the trouble is most people refer to "S Corp" as if that is a kind of legal business, but it is not -- it is just a shorthand. The legal entities are: sole proprietorship, partnership, LLC, and corporation. There isn't a legal entity that's "S Corp" or "C Corp" -- that's a shorthand. The "S" and "C" is the sections of the IRS tax code that talk about how a business can be taxed. So you can have a combination of LLC taxed as an S Corp or corporation taxed as an S Corp etc.
@@ElizabethPW Thank you once again!
how do you pay yourself if you are a Professional Corp (licensed) but with husb/wife officers
Depends if you are an S Corp or C Corp, but generally you pay yourself a salary and also can pay yourself distributions
I am an alien non resident of America and I have a LLC of one member in the state of Wyoming. Can I make myself a salary from the company and it is calculated from the expenses to reduce taxes ?
If you are a non-citizen/non-permanent-resident, then you cannot be the owner of an LLC that's taxed as an S Corp, and that's the way LLC's hire the owners as employees and pay them a salary that's a deductible expense of the LLC. But talk to an immigration attorney to see if/how you could set up your immigration status so your business could sponsor you and hire you (not sure if that will work if you are outside the US, but I'm not an immigration attorney so I'm not sure).
@@ElizabethPW Thank you very much
I work as an hvac tech for a company and earn $130k per year. That is more than twice the national ave for this profession. If I go on my own, I need $100k per year to live on. I see the recommendation is to take just 30% of what the business earns. Is there a reason not to pay myself the $100k that I've been making as an employee even though it is double the norm? Is there a tax reason to pay myself the least amount possible?
Hm I think the 30% may have just been a rule of thumb to factor for overhead and employee salaries, but if you have minimal overhead and no employees, it would not apply to you. If you are an LLC taxed as a sole proprietorship, the entire profit will be taxable to you whether you pay it to yourself or not. If you have an LLC taxed as an S Corp, then you have a lower salary (to pay less self-employment-type taxes) and pay the rest of the profits to yourself in distributions.
@@ElizabethPW thank you! Obviously when we first start, I don't expect to earn that much money. It will be painful to start our own business making far less money for a while.
I saw some where that how you set up your distribution and the language of you operating agreement can stop creditors from getting your money… what terminology would I use to look further into that scenario?❤
If you honor corporate formalities, then the LLC can protect the LLC's creditors from getting your personal assets. It does not protect the LLC from the LLC's creditors, though.
@@ElizabethPW 🙏❤️
Thank you for your super-informative and engaging video! One question--is it important to keep money available in the business checking account (aside from funds to pay for expenses)? Is it bad for my credit rating to make distributions to myself and then leave a small balance in the business checking account? Thanks for any insight you can share!
I don't think that the credit rating agencies look at your business checking balance. Now that bank itself will, when deciding if it will give you credit.
That is so helpful to know! Thanks so much, @@ElizabethPW
So in essence, you’re being taxed 2x’s. The LLC has to pay income tax on profits. the money that distributed to yourself is taxed as income?
No, if the LLC is taxed as a sole prop, partership, or S Corp, it does not pay taxes on profits. Only a C Corp (or an LLC taxed as a c corp) has double taxation. Also, you are not taxed on distributions -- the IRS does not care if you actually distribute -- you are taxed on profits.
Thank you for the video. It is great information. I was wondering if you can create an S-corp under a revocable trust? Thank you
There are certain kinds of trusts that can own an S Corp, including "grantor trusts" (which is probably what a revokable living trust would be, as long as the grantor is living). You'd want to make sure it is set up right, when you are talking to the estate planning or asset protection attorney who is creating the trust
@@ElizabethPW Thank you so much. Great information.
I’m starting a small online store. When tracking these payments to myself on my spreadsheet, do I just list it as my salary?
So if you are taxed as a sole prop, then it is a "distribution" but if you are taxed as an S Corp, it is a salary where you run payroll.
Hi! Love all your wonderful & very informative videos. Have you heard about the new law starting in 2024 called " B O I " ( beneficial owner information) that all. LLC will have to file? If so, can you make a video of it.
Ah thanks for that reminder, yes I'll add that to the list
@@ElizabethPW Thank you so much! I'm looking forward to seeing that video! 😊
Do you have to pay yourself payroll and distributions or do you just pick one or the other? What would be the benefit (besides taxes) of doing one vs other?
If you have an LLC taxed as an S Corp, yes you have to pay yourself payroll as the owner-employee (but you can also pay yourself distributions). If you have an LLC that is taxed as a sole prop, you have to do distributions. The difference is about how they are taxed, with self-employment tax versus not.
I am a lawyer with a new solo practice, for now running it out of my home. It is established as an LLC and I am planning to elect to be taxed as an S-Corp. I wonder if it would be wise (and lawful?) for me to rent the home office space and computers, peripherals, etc. to my LLC, as a way to extract "rent income" from my LLC (thus income not subject to self-employment taxes). I heard once there was an IRS rule against that if I am actively involved in the running of the business (which I am, of course, as a solo practitioner). Any thoughts?
My understanding is that self-rented property is a tax audit red flag. But also my understanding is that there's a rule where the losses are passive but the income is active ... anyway, it is a mess so it only makes sense to do if you have a tax person run the numbers both ways and it is worth it.
Hi Elizabeth- as always - thanks for the great info. We live in LA and get paid as an "S CORP" we're currently off due to Writer's Strike. I'm wondering if we can/should file for unemployment while we wait the strike out. Possible? Benefits? Drawbacks? Thanks again for sharing your knowledge.
My understanding is that in CA, a strike is voluntary so it is not eligible for unemployment, but there are nuances to it - here's some info on that - edd.ca.gov/en/uibdg/Trade_Dispute_TD_60/
Very helpful information. I have one question however. What is if it a passive member who has only invested in the LLC or if it is a member has has only worked a certain amount of time both in return for a "percentage"? Would a passive member or one who performs a limited scope of work still be required to be salary? I would assume that "percentage" would in effect be a salary?
Great question! So the salary requirement applies to the active owners (also called "owner-employees") who work in the business. A passive investor, who is not an officer and does not work in the business, would just get paid distributions. If a member has only does a small amount of work for their small percentage of ownership, they would get a small salary as a part-time employee (your justification to the IRS would be that they are part-time, with evidence showing that) as long as they are working.
Great video! Thank you! Can I set up an LLC (taxed as an S-corp) for myself with two unrelated businesses under it? From a financial perspective (not a liability one), what should the net income be for this to make sense?
Can you? Yes. Typically S Corp tax status makes sense when high five figures in profits
Thank you! @@ElizabethPW
Your channel is so helpful. I have a confusing situation where I am mostly self-employed (ebay seller and now will be doing freelance work where someone has already hired me for long-term work/I have applied for an LLC for this) and I also work very part-time for an actual employer. It seems as though turbotax was able to handle the self-employed/ebay & actual employment scenario for taxes last year but dread thinking about next year. I have an EIN that was used for ebay; can I use it for new freelance job/LLC also? I guess I have to have separate checking accts/credit cards for the two self-employed gigs? Wish I could find a trustworthy accountant w/reasonable rates. The S-corp taxation scenario sounds interesting but I don't quite understand it and don't know if payroll software is necessary, as it's just myself. I'm also in CA and canceled a previous LLC within 12 months, avoiding the $800 fee, but don't recall being asked on turbotax if it was the final tax return for the biz, so I'm concerned if I will have a problem later. I did check the website and it said the LLC was terminated. Thank you for your generosity in answering inquiries for people!!
So a new LLC will need its own EIN. If you have an LLC, then it needs its own bank account and credit card for the business(es) under the LLC. But if you have multiple sole prop businesses, they can share accounts if you want. Really S Corp taxation only makes sense when you are making enough money to pay an accountant to figure it out.
@@ElizabethPW Thank you! I have an EIN used for ebay (they require one, even though I'm a sole proprietor there); will my taxes be complicated with two separate EINs (one w/ebay and one w/new LLC)?
LLC/S-CORP should I include the quarterly income tax in my distribution to my personal checking, then pay it from and my personal checking or can I pay income taxes from the business account?
So if your LLC is taxed as an S Corp, then really you personally are paying the taxes. So yes I'd do a distribution for your taxes to your personal account and then pay the income taxes from your personal account
@@ElizabethPW Thank you! I’m a retired CPA running two businesses. I’ve watched a lot of your videos. I subscribe to probably over 100 channels. Your channel will be the first I will become a Patron of.
Great video and I have a question (I need help )I want to sell on the Amazon platform as a business so what be better LLC or Corporation? Thank you.
I don't think it matters for selling on amazon. All things being equal I usually recommend an LLC because the paperwork is easier
if i have an amazon seller account under LLC (single member LLC) and a business bank account linked to amazon under the same LLC, when i get the funds from amazon, and never withdraw to my personal account, do I have to pay taxes?
For tax purposes, it is about whether the business makes a profit, even if you don't pay that profit to yourself or withdraw it. It is about profit (after you subtract expenses) not the gross revenue.
Hi, is it best to avoid filing your LLC as an S-Corp if you make less than $40,000 net profit for the year?
At that level the fees might not be worth it, since you won't have much tax savings.
May I ask what laws do you practice?
Generally I practice business law and intellectual property law, focusing on LLC/corporations, contracts, and trademarks. But I'm no longer taking new clients.
Thanks this video was really helpful but I have a question, if my company makes 2000.00 a month I can transfer all 2000.00 to pay myself? So I keep all that money being a sole proprietor right? I know I have to save for taxes from there but as m I right?
So yes you can pay yourself the entire profit -- make sure to subtract & set aside any expenses from the $2K including taxes (also stuff like -- bank fees, advertising, office expenses, domain name fees, web hosting, etc.).
@@ElizabethPW ok thank you🙂
Hello! If I already have an LLC in the state of Pennsylvania, can I also have one in California? I reside is California. The address associated with my PA LLC is my CA address(does that even matter?)
You can have an LLC in each state. You can also register the Penn LLC as a "foreign LLC" in California.
@@ElizabethPW WOW! That’s amazing, you are the best!❤️