Mark J. Kohler shows how converting an LLC to an S-corp can cut self-employment taxes by roughly $7,500 on $100,000 revenue. He explains the Form 2553 filing, the requirement for a reasonable salary, and the corporate formalities you must maintain after conversion. Hire a tax professional to do this right.
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Do any of you have an LLC with an S corp conversion? Have you thought about converting your LLC to an S corporation? Well, this video is for you. I'm going to break it down and you need to know the basics of this because it's an important tax strategy that can save you thousands. Now my name is Mark Kohler. I'm a CPA attorney, best selling author, radio show host and I helping my clients save money. And I love the American dream, I love small business. And I've got to go through some important points here and I'm going to use the whiteboard to help you on this LLC S corp thing. Now I've got other videos on my YouTube channel on when to convert an S corp and when to do this and how to manage your S corp. Several videos you'll find very helpful. Please get a bowl of popcorn and some diet Coke and start working through them. But if you have an LLC and considering an S election or doing done it already, that's what we need to talk about. Now first important point, never forget this. LLCs do not save taxes. That's right. Some of you may have just fallen off your chair. Some of you might be very upset by this. A limited liability company. LLCs do not save taxes. They give you asset protection. Now you can get a tax ID number, open your bank account, start a business with a partner. I mean have your S corp own the LLC. Oh my gosh. LLCs are awesome. I use them every day for clients around the country. But they don't save taxes. The only way the LLC will save you taxes is if you convert it to an S corporation. Now the benefits of an S corp is the ability to save on self employment tax. So let me give a quick example here. You've got your LLC, you got your S Corp, let's say you make $100,000. In both examples you bring in 100,000 in sales, 100 100,000 in sales, you spend 25,000 on expenses and you net 75. Same example in both scenarios, two different companies, but two different results. With self employment tax you're going to pay 15.3%, almost $10,000 in self employment tax before you pay federal or state tax. Ouch. With an S corporation we're going to take a salary, maybe 25 grand and take a dividend or pass through income or a K1 of $50,000. I call it different things to make sense for folks. This could save you close to $7,500. Wow, that's a huge savings. Now I know some of you accountants out there are like oh my gosh, that's way too aggressive of a salary. Or some of you are like, well my account said I had to take a bigger salary, I could never do that. It's got to be reasonable and blah blah blah. I've been teaching this for years. Interviewed ex IRS agents on my radio show. I write on this. I research every payroll case in America and I've got a matrix. Watch another video of mine, read my book and I'll help you determine the proper payroll. This is an example, but not far off. Too many business owners take too big of a salary. Now if you have an llc, you're paying self employment tax on everything. But with an S corp you save on self employment tax. So what you can do now, this is the point of the video is you can take an LLC and convert it to an S corp with one form, it's called a 2553. And I can convert my LLC to an S corp. Now that's simply stated. This is a very complex issue that I've summarized in about 90 seconds. You've got to get a real tax attorney or CPA or attorney that does taxes that understands this to help you in the conversion. That's what my law firm, accounting firm has been doing for 15 years for clients around the country. And we're affordable. Don't just go online and click, click, click and think you're done. Too many people screw this S election up. Let's hit a few other important points. First, let's talk about timing. And I oftentimes call this L.L.C. s Corp Insurance. I mean it's really cool. Now hang with me on the insurance part of this. But for those of you that are in LLC right now, in any given year this video could transcend several years. So don't worry about the year. But maybe you're somewhere in the middle or the end of the year and you've got an llc. You can back date into an S Corp and turn it into a corporation. S Corporation as of January 1st. Now some of you may freak out again and go, I thought it was a 75 day rule. No, no, no. There's special revenue rulings and documentation you can put on the 2553 to do a retroactive S election up to a year. That's right. And again, if you try to do this online or try to do it yourself or you hire an accountant that doesn't understand this, you're going to jack it up. And we only charge like $125 to do this 2553 election, it's not that hard if you know what you're doing. So you can make this election back to the beginning of the year. Now, where's the insurance and all this? This is why I call it an llc. S corp insurance. Because some of you don't know how much money you're going to make this year. You don't know if an S corp is really a right election for you. So in your first year, you make this election. I set up LLCs for clients all the time. And then we talk in November, December and say, hmm, how much money did you make? What should your payroll be? Could we do an S election to the first of the year? Are we going to see savings? And if you're going to see savings, boom, we pull the trigger and we make you an S corp. But that's a consultation at the end of the year. Now, if you're making more than 50 grand net anywhere in this mix, you better call right now and get your S corp going. But this is something you can determine at the end of the year. Now, you can't wait till the next year and go, oh, I'll be an S election two years back. No, no, we're going to try to make this S election in no later than the month of January the following year, because we've got to run payroll reports. Remember, if you're an S corp, you've got to take payroll. So watch the other videos on how to manage an S corporation and how to take care of it. Now, I just want to make one more final point. I could go on this for a half an hour to an hour. I've got online videos on my website for hours in killer topics you would love. It'll save you thousands of dollars. It's a few hundred bucks. Check it out. But just let me wet your whistle here on this payroll issue and how much payroll to take. We've got all sorts of things because a lot of people think, oh, I got an llc. So I just have one sheet of paper. I'm good. No, you should be doing your annual minutes. You should be making sure you're filing everything with the state. At the end of every year. You should have a corporate book and an operating agreement. Well, I thought with an LLC it was easier than an S corp. No, you treat them the same. That's why I write books on asset protection. Good luck in court with that one sheet of paper. Maintain the LLC like a corporation. If you make the S election, you got to treat it like a Corporation, you're going to do a separate tax return at the end of the year. You got to do payroll quarterly. See all these little issues? Well, this is what a good advisor should be helping you do. In an hour with any of my tax lawyers, we pound it out. We nail down the issue so that your S corp is ready to go. Then you have a follow up call maybe once a year, we dial it in. It doesn't have to be thousands upon thousands of dollars. For a few hundred dollars once a year, you're meeting with a tax lawyer. Built for small business. That's what our firm is built for. Small business owners. And then we hook you up and you get this right equation done. Guys, this is so important when you're trying to build wealth. It's hard enough to be a small business owner and make ends meet. And then the tax man at the end of the year is killing you. The S Corporation is so powerful for operational businesses. You're not going to convert an LLC for rental property. You're just going to use an LLC for operations and then do an S election. That that answer alone that I just shared, there is a key part of a consultation to help you succeed in this conversion process. So anyway, this is not a sales pitch. This isn't an infomercial. I hope. I wrote down some important information that'll help save you. But there's. It's so much more than just a YouTube video. Set up a consult. Not with me or my firm. Find a tax lawyer that knows what they're doing, that loves small business. That's going to save you 10 times what you pay them. That's what we're about. So anyway, keep living the dream. Don't give up. Boom. See you later. Thanks so much for watching that video. And I want to be your source for tax and legal strategies. It's hard enough to live the American dream without being out on the web, on Google, trying to find answers to complex questions and just clicking a mouse. Hoping you got it right. My team and I want to be a huge resource to you, the law firm, accounting firm, my education resources on my site. Please continue to follow these strategies. I know they'll save you thousands. Now click here if you want to be a part of my newsletter. It's awesome. Weekly updates and deadlines and strategies and tips. Also subscribe to my YouTube channel. You'll love it. And make sure to click the bell icon so you get a little ping whenever there's a new video. And finally, check out my site marjkohler.com with all sorts of videos, probably 70 plus videos, 30 plus hours of content. That'll save you thousands of.
