Mark Kohler explains why LLCs should be your first business move, then converted to S Corps for tax savings. A two-member LLC cuts audit risk by 13-15 times compared to a single-member LLC. You can retroactively elect S Corp status while keeping the same EIN and bank accounts.
The LLC is the great first step. You can file a two member LLC, and guess what, Mr. Sorensen, my chances of an audit risk go down by the same 13 to 15 times. I can always convert my LLC to an S Corp if I need to. 80% of our clients use the one two punch. You want that one two punch? That's what's going to make you most effective in that bar fight this weekend, Tristan. You need the one too. Well, we're the only ones teaching street fight techniques out here. No matter what type of small business you're starting, no matter even if it's a rental property and you're buying your first rental, you've got a side hustle, you're doing Uber, you're doing whatever. The LLC is the great first step. It's the best to start with because it gives you flexibility to make changes later. And you need that entity to get your ein, get your name, get legit, get out there, go hard. You're going to feel confident, you're going to feel proud. You're like, damn it, I started my company. It's going to motivate you. It is true the LLC does not save taxes. The that LLC opens the door for the S Corp conversion later. It creates legitimacy, just like I said, it gets you out of the gate, off to the races you're cruising, but it does not save taxes. Please, please, please do not think that the LLC is going to open up this wonderful, you know, tax write off regime that you weren't able to participate in. I was, in fact, in a workshop up in Idaho Falls over the weekend, and after teaching for an hour or two, someone raised their hand and said, well, I just started my company, but I have to have an LLC before I can write off my home office, right? Like, no. So all of you out there, you know, this is a little defense for anybody that's thinking LLC or S Corp. You don't have to have either one of these. If you want to just start your sole proprietorship, start tracking your income and start taking write offs, get in startup mode, start taking. Tracking your expenses. So there is that camp. With an llc, you can file a two member llc. So let's say you're a husband, wife, or you have partners in a rental property, you're going to have to file a two member LLC, which is a 1065. And guess what, Mr. Sorensen, my chances of an audit risk go down by the same 13 to 15%. Or, sorry, 13 to 15 times. Or 13 to 100 to 1500%. Less chance of an audit with a two member LLC. So if I want the audit protection, yeah, you can still get it. I like the drawback of an LLC in a partnership is there is no ability to save on self employment tax. So don't take Matt's statement that oh, use LLC for partnerships is the get all end all, because it's not. I have to concede and say layer two needs to be that S corp level. So I can always convert my LLC to an S Corp if I need to, even retroactively. So my little Uber driver's like, okay Mark, I'll get my LLC going. And they have a kick ass year. They do great, they're making money. And then they're like, man, I should have done an S corp. Oh, we can take care of you. We can back date that LLC to an S Corp to the first of the year and save those taxes if necessary. When you set up your LLC with the ability to change the character later to an S Corp if you need it, the LLC name does not change. You may still be Green Tree Enterprises llc. And then behind the scenes you're now an S Corp. Your ein stays the same, your company name stays the same, your bank account stays the same. You don't even need to tell the bank. And so where this is helpful and really there's many of you listening or watching here on YouTube, if you're a brand new business owner and you're not sure what your income level is going to be this year in 2023, pull the trigger now. Get the LLC going. Our attorneys will help design your trifecta, put it in perfect harmony for the future. Then later in the year when you start making money, we can backdate it into an S corp. If you don't have an LLC now, you can't backdate. And so that that llc, it becomes S corp insurance. Yeah, I like to call it that. I like that. So whether you do an LLC or S corp, both, number one purpose before we get to the tax issue is, is to create that barrier of protection and amenity, possibly some privacy, possibly tax savings. But number one, first and foremost is you're creating that veil of protection. So we both have to admit, I think that the setup has to be proper. Minutes every year have to be proper. Make sure you're paying the fees to the state and we go back to that company maintenance program. Here's the main takeaway. I would say 80. I want, I'd like to say 90, but I'm going to go with 80% of our clients use the one two punch. To bring it around to our boxing analogy, they have an S Corp for all of their ordinary income operations. Online sales, consulting, affiliate work products, services. And S Corp is the perfect fit for that. Maybe a solo 401k is a little added benefit. And then on the right side of the equation, they have their LLC for the rental properties. You might be using an LLC with your Roth IRA or your 401K to do some additional investing. The LLC? Oh, I should have used that one. The LLC can be used as structure with retirement accounts. Okay, so here's the point, people. If you're a business owner, if you're an investor, if you're needing someone to bring this all together, that's what our tax lawyers do at kkos Lawyers, our certified tax advisor network. They're trained on this to help work in conjunction with the lawyers to bring together your plan. You want that one two punch? That's what's going to make you most effective in that bar fight this weekend. Tristan, you need the 1 2. Really? You think all of us accountants and lawyers, we learn this in school or in the CPA exam or the bar exam? You don't. You learn it out on the streets? Well, we're the only ones teaching street fight techniques out here. So on our call this morning, a CPA asked, well, I didn't think a revocable living trust could own an S Corp, but yes, it can. The IRS is allowed for a see through grantor trust, which an S Corp is Even on the 25:53 will list the trust, which with the one of the spouses Social Security numbers on the second page of the 2553. So for you accountants out there, that trifecta is really comes together with that revocable living trust owning the S Corp and the llc, bringing it all together because I hate to tell you, someday you're going to die. Your clients are going to die. And you don't want to have a train wreck with a disorganized business structure. So make sure you embed, bring it all together. And if you need a console, our links are down below. The lawyers are out maybe a week and a half, but they'll build a plan for 2023. Get a plan for 2023.
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