Mark Kohler breaks down LLC partnerships, using the Keto Twins' 50/50 setup as an example. Each partner should form her own S corp owned by a trust to separate expenses, cut self-employment taxes, and take individual W-2s. Watch out for California's $800 S-corp fee.
How would a trust work if you have an LLC partnership? 5050 with my sister Dottie. We were talking about this last night. Boom. The Cato twins are sisters and they have an LLC partnership. We are thinking about a trust for privacy like you mentioned. Okay, you guys ready? I love this topic because when it comes to partnerships, we got to be careful. We unravel this crap all the time. Okay, I'm going to go to a little thinner pencil here. Okay. For all of you out there that might have a partnership. And we're talking to the Keto Twins. Keto. Keto Twins. Okay, here's how it works. Now this is tricky. Here's our operations. Let's say the Keto twins are doing an operational business. Let's say they're going to do online store, they're going to do affiliate marketing. I don't know, but they're going to sell crap on ebay or Etsy, whatever. So we got the keto twins, 1 and 2. Do I set up an S corp and let them both own the S corp. Because the number one tax. I'm worried about everybody. What is it? I'm worried about self employment tax. And so with the partnership, I'm worried about tax. Right, girls? That's my first concern. And then they go, we want the trust in there too, Mark. So I want my trust to own rlt, Revocable Living trust. And I want my trust to own the other part. Okay, cool. The privacy trust, that works. But the problem is you've jacked it up with an S corp. Now some of you say, well, Mark, you preached forever that we need an S corp to save on self employment tax. Yes, but that if it's, if it's your S corp or you're married. I got two different twins. Let's say one of the girls wants to write off cell phone, travel, home, office. The other girl, she bought a new laptop, a new Bose headset and a phone, all for business use. Well, they can't write those off in the same S corp without it being unequal. It's all jacked up. One of the girls wants to buy a new car, the other one doesn't. What do you do? You can't. Unreimbursed employee expense doesn't work. Now, we got different salaries, we got the W2 thing going on. It's a freaking mess, girls. So what do we do? Here's the solution. We get rid of everything but the partnership. Look it, but we don't do an S corp. We do an llc. Now you're going to say, well Mark, now the girls are going to get screwed with self employment tax. That doesn't make sense. They own a restaurant, you've got a partner, you own a restaurant. Together you're doing real estate flips, together you're doing online sales. You're gonna get killed with self employment tax. So what do we do? Each girl sets up their own S corp. Okay, now I know you in California. You're freaking out going Mark, an S corp in California is $800. You knew you're stupid. That's gonna cost me two. Do you think if I could write off your cell phone, your computer and your car it's gonna be okay to pay 800 for your frickin s corp when I saved you 5 grand in tax? People quit stepping over the dollar to pick up a stupid nickel. I know it sucks in California. I lived in California, I know the routine. The $800 sucks. But don't run away from it. Run to the light, people. Run to the light. I want to save you taxes. So each daughter, each girl, each sister in this, the twins, then they set up their own trust. Oh, their trust owns their own S corp. And let's say one of the girls says, oh well, I'm going to do some other stuff on ebay that's my own or I'm married and my husband, he's going to do some contracting and I've got another 1099 because I'm a realtor on the side. And the other sister goes, well I'm not doing any of that crap. My only income is the 50% from the LLC. Okay, that's cool. Each of you can set up your own W2, hire your own kids, write off all the expenses that relate to you because you've got separation. Okay, so in my book, the tax and legal playbook, I have a whole chapter on partnerships. So this is the chat, the book and I have a whole chapter on this issue and I've got videos on YouTube on this. Okay, so what's the chapter on partnerships? It is documenting a partnership bringing on investors the how to set it up. This is chapter 22. And yep, I also like the S corp in chapter four.
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