Supercharge Your LLC or S-Corp | Year End Tax Tips #1

People, it is tax planning season now that October 15th is over. It is now time to implement every possible strategy you can to save taxes in 2024 and kick off 2025. I cannot tell you enough that real tax advisors, this is their busy time. Who cares about April 15, punt, kick, extend, whatever. Right now is when it's happening. Now I'm a CPA attorney, best selling author, certified tax advisor myself and I represent the Main street tax where you are tax advisors all over the country helping small business owners. And today the number one, I'm not kidding, the number one year end tax strategy when we meet with clients is to make sure they've nailed down their S corporation. This week, October 15th, I worked on probably five different tax returns specifically in the last four days and they were each one jacked up on their S corp payroll. Not good. I'm not kidding. These are people that actually did some planning and got bad advice too. So I'm going to break it down here and any of you that are tax advisors, this is one of the key topics when you schedule your year end consultation. Now what is the important deadline in two weeks? Third quarter payroll. So if you going to make an S selection for your LLC for the entire year of 2024, you've got to send in some payroll on, before, on or before October 31st. And it's okay, you can send in a little much. And by the way, when you make an S election, people you do not have to issue yourself a paycheck. You just have to follow the protocol. So we're going to break this down. I'll take any questions. I know that I'm going to upset some of you tax advisors out there that are in compliance and been doing S corporations for years. And you're going to say Mark, you are running. You're going to say mark, oh my gosh, excuse me. You're going to say mark, you're wrong with reasonable comp. Reasonable comp is too low. I'm going to say this right now. In 25 freaking years I have never had a client audited for taking too low of payroll in an S corporation. Never. I want to make sure my clients are protected and safe. And I'll tell you, seven out of ten clients I meet with, their payroll is screwed up, they're taking way too much or they're not even in a selection. All right, by the way, I've got some flash sales and some bogos on some upcoming education events that are going to be freaking amazing with parties and cocktail receptions and open Bars. And when a bunch of nerds get together with small business owners, people are saving money everywhere. It's going to be a blast. I've got some continuing education lunches coming up for you. Tax advisors, certified financial planners and lawyers. You're going to love them. They move the needle and they're going to help you make more money with your year end consults. All right, now question number one. Why should I make an S election, Mark? Why is this such a big fricking deal? And why were multiple tax returns I looked at just this week had this problem? We're going to go to the whiteboard here is a typical llc. A typical LLC is going to be saying, all right, I'm going to go do my little business. Maybe you're doing online sales, you might be doing any sort of service business, selling product, doing Etsy, doing Uber, anything like that. So you have your LLC and let's say you're bringing in. Can we put the whiteboard up please? Oh, I don't see it, but they see it. Okay, all right, just didn't know if I was going to see it here on the camera. So let's say you're bringing in 80 grand and you know, six, $7,000 a month and you're spending, I don't know, let's go with 30. You're spending 30 grand on expenses and let's just assume you're nailing those. We're talking auto, home, office, electronics, computers, travel, kids, the list goes on and on. I've got so many little write offs. But you are netting 50 grand, so you net 50 grand. I've got clients that are writing books, they're doing Etsy sales, they're an influencer making ad revenue. If you are going to net 50,000 or more, you're going to pay self employment tax at 15.3%. That's $7,500 out the door. Then you pay Fed and state, so this adds up quick plus Fed plus state. This is the problem with an LLC and people don't see it coming. Now if you're an S corp, then I'm going to talk about the procedure here. If you're an S corporation, you make the same money. And by the way, you don't have to change your LLC with the state, you don't have to refile it, you don't change your tax ID number. I want to make sure your LLC does its BOI report. It's got all the pieces and parts, but you don't have to change anything except file a Special form with the irs. And I will show you that form here in a moment. So you bring in the same 80 grand. You have the same freaking bank account. You have 30 grand in expenses. And you know this year you're going to make 50 grand. You already know it. We're here now in third quarter, and we're turning the. Sorry, we're in fourth quarter, but you're doing your third quarter payroll now. That's what the deadline is coming up. But you already know you're going to make your 50 grand. What we do. And this is what every dentist, doctor, small business owner, landscaper, hairstylist, realtor. This is what we all do. And it is not high risk. I actually reduce your chances of an audit. You're going to take half in a payroll and half in a K1 or pass through. Now, that number is going to vary depending on how much you make or don't make. It might be a 60, 40 split. It might be a 50, 50. It might be a 70, 30. I'll talk about that in a moment. For you accountants out there, don't freak out on a 50, 50 split. I would do this all day long and on Sunday and freaking sign the tax return right freaking now. I've interviewed prior IRS agents on my podcast, countless times, have said, mark, this passes mustard. We would never audit this. Never had it happen. So chill. Holy crap. What's the worst thing that's going to happen? You get a letter and you pay some fica. No one's going to freaking jail. No one's losing their accounting license. Holy crap. All right, I'm sorry. I get a little upset. Okay, so we split it. We take 25 grand is a W2. Okay, that's cool. 25 grand. And 25 grand is K1. And you're going to send in 15.3% on this 25 grand. That's what you pay. That's your FICA. What the freakin FICA? That's the F word here. We got to get rid of the FICA. And so now you only pay 3250 in FICA compared to 7500 here. So we just saved $3000 like that? Super easy. The more money you make, the more we save. It can end up into 10, 15, $20,000 or more, depending on how much your profit is. But this is it. That's easy. You take your LLC and we convert it to an S corp, and we pay in our FICA now. So we don't pay out at the but later. That's it every realtor that makes more than 50 grand does this. Every landscaper, every dentist, every doctor, every accountant, every lawyer. We all are s. Corporations. And I don't care if your accountants told you, oh, it's all high risk. You don't. You make. You don't make enough to do that. A reasonable comp salary. They are wrong. I've written on this countless times. I read every reasonable comp case. I teach reasonable comp ce. I'll stand behind it all day long. Please check out my tax Pro advisory program. That's legit. And I have accountants and attorneys and CFPs around the country that stand behind this with legitimate cases and legitimate rules. There are way too many conservative accounts out there. And if you're getting that message, you've got the wrong freaking accountant. Tell your sister you're going to quit making her a spaghetti dinner so she can do your taxes on TurboTax. Can we up level, people. This is what rich people do. No one's getting audited. It's the freaking person that takes a $10,000 salary when they make 100 grand. Now they're going to get audited. This is fine. All right, now I'll quit yelling and freaking out. Let's get into the process here. So this is why. This is why we do it. So let's look at our whole year now. So let's say here in 2024, you've made. You're right here. You're in fourth quarter, right here in October, and you think you've made 50 grand plus net. So what we're going to do is backdate into an S Corp. And when we backdate, you're going to file a form called a 2553. Now, one of the rules is you're supposed to do it within 75 days of the beginning of the year. And some accountants are like, oh, you missed it. No, no, no. You file a revenue ruling with this, and it's called the 2013-30 RevProc. RevProc 2013-30. You're going to write that on the top of the form. So you accountants out there, very straightforward. You put RevProc 2013-30 at the top. Put a cover letter on it saying, hey, this is a retroactive late s election. Because my client didn't know what they were doing. They had bad advice. You send in a little letter, you reference RevProc 2013-30. You send in the 2553. Make sure they sign the second page, oftentimes a mistake, and you send that into the irs. Now it is super expensive to do this. At our law firm we charge $250. I know, it's highway robbery. $250. Do you feel the sarcasm? Okay, Because I'm dripping it on here. I'm pouring it on 250 bucks. Call my law firm, the links down below. Kkoslawyers.com get a consult with the tax lawyer and a plan. 1500 bucks is our starting point where we do a plan for almost 80% of our clients with a trifecta and we give you a tax strategies. If we don't save you 10 times, we got a mistake, something's wrong. So get an appointment. We're going to save you what you pay us in taxes or more. And we're getting you on a track to build your American dream. So we're going to file the 2553, we're going to back data to 1124. Okay? That's step one. Now remember the rule. Let's go back up here. You've got to take payroll. If you don't take payroll, the IRS is pissed. Remember reasonable comp. We got to take reasonable comp. Now we'll go over some numbers of how much to take care in a moment. But the procedure is during the year in 2024, what you're supposed to do is send in your 941 payroll report at the end of each quarter. So this would be April, then July, and then October, and then we send in finally here in January, your last 941 and you get a W2. Now you don't get have to take a paycheck throughout the year. Your payroll company is just going to report these. So typically most payroll services are going to charge around $200 a quarter to do this for you. So you're going to spend about 800 bucks. Some companies do it cheaper. We have a great relationship with ADP and Paychecks and others. So you're going to do this payroll report every three months, going to cost you six to eight hundred dollars throughout the year. And then you're going to do the last step. So that's step number two is you got to do payroll. Now this October report is due October 31st for third quarter. And that's what we're trying to get off right now for Q3. We want to get off this report. So if we go up to our example and say, okay Mark, I'm going to take 25 grand in payroll for the year and that's the number you choose, then you're going to send in a quarterly report during the year to get you to 25. Now, since you missed the first two quarters, you're going to do a payroll report of 12,500 in payroll. You're like, mark, I don't have a paycheck for 12, 5. Don't pay yourself a paycheck for 12 5. You're just going to send in a report as if you did take payroll of 12,5. That's it. So you send in the report, and you're going to deposit your FICA tax, which is. Which is about 15.3% on this. So we're looking at about 1,500 bucks or so, $1,600, $1,500 and change. And you're going to send that in, and that's going to be your first deposit for third quarter. Then we'll do it again at the end of the year. You end up depositing your 3250. And you just saved 3250. So that adds up. Guys, this is so normal, so common. Now the last step is, and this is what we were busy doing here this last week, is you're gonna file an S corp tax return, which is audited 15 times less than a regular LLC. So you're gonna still do a 1040 tax return, but now you're also gonna do an 1120s. And 1120s is where you're gonna report your 80 grand of income, your $30,000 in expenses, and then $25,000 in payroll and $25,000 in profit. See? And then here's your. And all that 50 grand flows down onto your 1040. That's how it works. Now, this extra tax return is going to probably run you 1000 bucks. So between payroll and your S election, you're going to have to do your payroll and your S corp tax return. You're going to do approximately about be out about, oh, $1,500 in tax prep fees. But you're going to save money because you're not going to do the Schedule C anymore. So I'd like to see, you see a tax prep cost of around $1,000 to do this. Now, for those of you that are making more than 50 grand net a year, holy crap. The savings adds up. Quit. And it's the same cost to prep. So the more you make, the more you save. All right, so there's. That's it. You've got to do your retroactive S election, which is step one. That's the 2553. Then step two, you're going to do your payroll reports and start with the one that's due in two weeks. And then step three, you're going to file an 1120s tax return. Now, if you don't know where to go to do this, you can start at my law firm and get a consultation and get a plan put together or you can go to one of my tax advisors at our network. I'll put the link down below markjkohler.com and it's our tax pro network and you can click on it and find an accountant anywhere in the country. Young, old, male, female, speaks Spanish, speaks Chinese, big firm, little firm, whatever you want. Get there and say, hey, I need a plan and I need to make my S election and I need someone to do my S corp tax return. And I'll tell you right now, if you're making more than $50,000 a and your small business, it pays for itself and then the savings starts ratcheting it up and you reduce your chances of an audit and you get a W2 so you look better for banks when you want to go buy real estate. There's so many different benefits here. I just love the S Corporation. Now, before we do some questions and some Q and A here and I want you to start typing your questions down below. I don't know if you're on Instagram, LinkedIn, YouTube, Facebook, wherever you're at, type in your question. If you're pissed and you're saying, mark, you're telling me something my account says I can't do, I'll break it down with you. I'll talk about it. I've got books, I've got classes and lectures everywhere. Now the next big event I want you to check out is my tax and legal360 event. It's for three days in December. It's coming up in about six weeks. We took down the entire hotel at the beautiful Scott Resort in South Scott in Old Town Scottsdale. Who doesn't want to come to Phoenix for three days? The hotel rate is one is super affordable. And our ticket prices, we're doing a bogo right now for two days. A bogo. If you buy a ticket, you can bring your friend for half off. A regular ticket here for General admission is $9.95 for three days of 20 to 25. Classes, parties, receptions, networking, you are going to save what you, I can literally tell you five times, you're going to save in taxes the cost of coming to this. If I don't save you that in taxes. When you come to this event, you find me the event, I'll give your money back. But I'm going to quiz you. I'm going to ask what classes you went to because I know these freaking classes will save you money. And everybody comes up and gives me hugs because they're like, oh my gosh, I never knew a tax conference could be so kick ass. So get over to tax and legal360. The links are down below and you can get a regular ticket for 9.95, a general admission and your friend comes for 360. Or get a premium ticket for $1,500 which includes lunch every day and more panels and tickets to the party on Friday night. You can buy tickets separately for the party, don't worry, but it's all included and the friend is 720. So this could be your spouse, your business partner. It's a tax write off to come because this is for your business. This is super powerful. Now for any of you advisors out there, certified financial planners, attorneys, CPAs, enrolled agents. I'm doing five classes starting October 22nd. CE classes over lunch, just for an hour every Tuesday at lunch. And you can check the links down below with the code for 50% off the individual CE class or 75% off. If you buy all five classes, they're recorded. If you miss one, you can catch it later. People, how many of you want to shoot yourself in the head after continuing your education course? Nine times out of 10, they're terrible, they're boring, they don't move the needle. Everybody's afraid to give you real cutting edge strategies because they think they're going to get stewed. Bull crap. These five CE classes will call TaxPro Talks. You'll see the link down below. Go to the website, use that bonus code. Unbelievable. These five classes will change your year end consultations with your clients and save you money too. So check those out. 50% off, 75% off or the BOGO for 365. All right, so let's dive into this. One of the most important year end tax strategies we're talking about right now, which is the S Corp. I'm going to be going live every week between now and the end of the year with year end tax strategies. You've got to subscribe, you've got to hit the bell button. Let your friends know if you're in a tax practice. Say, hey, this Kohler guy is not too bad. Guys, I want to be your fearless leader. I know the accounting programs and the accounting education and the industry is, is struggling. It's hard. And everybody wants the holy grail of tax advisory. I will help you get there. Please do a demo of my Tax Pro certification program on my website. Free to talk to one of my new member relationship managers for just a half hour and you'll see what it's all about. Okay, so, Danan, do we have our first question here?

All right, we have a question from YouTube. As a single member S corp, what is the best way to pay the payroll and stay in compliance? Sending quarterly and annual IRS report courts?

Well, if you're a single member S corp or Single Member LLC, it's the same rules as 100 members or 100 shareholders. Doesn't matter. So it's the same payroll procedure. And how do you stay in compliance by. And I don't want to sound rude, but doing what I just said, you're going to do a 941report every quarter. You can't wait till the end of the year and go, oh, I'll do my payroll now at the end of the year. Do you think the IRS is okay with that? No, because you're going to get hit with estimated payment penalties for not making deposits throughout the year and you're going to get those penalties anyway if you're not making deposits. So just do a 941report every three months in April, July, October. We got the deadline in two weeks. And then in January, you can call ADP, you can call paychecks, go to my network@marcjkohler.com and just hire a tax pro advisor to say, hey, I need my S Corp return and I need payroll. And do a discovery call for free with any of my network. I don't make any money off that call. You make the call, see if you find the right person when you. But that's it. That's how you get. You're compliant. You just do the payroll report and you're going to estimate your payroll based on your profit now. Oh, I promised that earlier. Let's do it right now. Before we take our next question, what I have created is called the payroll matrix. And this is a starting point that 95% of the time, I think it's just perfect. You're going to figure out how much payroll to send in based on this matrix. So here we're going to do either 0% payroll or 100% payroll. So this is your payroll percentage on this axis, payroll percentage. And then here is your income. And I'm going to put for you accountants out there. You Know what I'm talking about? This is really your draws. How much money is this person taking out? And so this is going to be 0 to 50 grand to 100 grand to 250 grand to 300 grand to 400 grand and up. Okay, now here's the trick. As your income goes up, so I'm making 0 here, 50 here, 100k here. See, as your income goes up, your income and draws want to clean this up. Your income and draws goes up, your payroll goes down, and then I flatline it. So here, this is going to be like 25%, 30%, 40%, 50% and up. So right here is kind of the sweet spot where I'm going to do about a 30 to 40% payroll allocation. So if you've got 250 grand in income, I'm going to do probably a 30% allocation and take a $70,000 payroll. Now, if some of you accountants are already freaking out going, oh, my gosh, Mark, you got to take more. You got to look at where they live and how much time they put in in their goodwill and order. Knock yourself out. The IRS computer systems fall right back here every freaking time. And you leave money on the table. Talk to your client. If they want to take more risk, let them. No one's going to get in trouble here. If you take too little now, if you take way too little now, we start talking 10 grand in payroll. Yeah, that's BS. That's all the cases out there. You people know that. Now, if I'm at a hundred grand or 150 grand, I might do 40% allocation. So on 100 grand of net income, I probably do a 40k payroll. If you saw my example there, I did 50k. I'm going to do a 50% payroll. You saw that. We're going to take 25k. So you're going to try to find this balance where you just keep the IRS happy. And it works every time. There you go. Pen drop. Okay, next question.

Dana, next question. I have a medical clinic, a fitness center, and real estate. I want to do advertising for all three. Should I create another LLC and charge myself at cost, showing no profit?

No, because then you're going to have income in your other llc and you're right back where you started. All you're doing is moving money from one entity to another. When you own it all, it ends up in the same spot. Now, when you say real estate, I think you mean rentals. And when you have these other operational entities, I would, if you were in a consultation I'd say, do you have partners or are these a hundred percent yours? Let's just have fun here for a minute and I'll tell you what this should look like on a trifecta. And this is why I would highly recommend you get a comprehensive consult with one of my tax lawyers. 1500 to 2,500 bucks. We will rock your world and save you a ton of money. And you'll get a second opinion. You can go back to your other accountant, find a new accountant. I don't come get a second opinion in the trifecta. This is your trust. Revocable living trust. And if you remember the question, this guy or gal said they have real estate, okay? So we're going to have an LLC for your rentals. We would never make an S election on rental properties. I don't even care if you manage them yourself. This is always passive. We're going to put assets on this right side over here. You're going to have your Roth, you're going to have your 401k, you're going to have your HSA. All good. The operations is where you have these. What is your fitness center and some whatever. What was it? Fitness center. And what? Medical and fitness center. Here's where you're going to do an S corp and then that you could have two different operations here. Just pay for advertising here. For crying out loud. Why do I need another entity that you're going to pay and then have income and then come back to you? You're going to get the same write offs in either entity. Trust me, I've done this. I've done my 10,000 consultations. No offense, you're not the first one to ask this strategy. And then we do it and you're right back where you started. So do your advertising as a write off in the main S corp now. If you have partners, you might have a partner up here with an LLC and they have their own S corp over here. Oh, I have a single member LLC, no partners, 100% fine. This is why you do a console. I don't know all the facts of your situation, but I'll tell you this right now, this is a beautiful trifecta. An LLC for your rentals, an escort for your operations. We do payroll, we save on fica, and I'm just getting started. This is literally strategy number one. Literally. You know my tax pro network, we teach 12 modules of 75 freaking strategies. This is one. Is your accountant bringing it? All right, next question. Dana,

next question. Would it make, Would it make sense to take more in compensation in order to maximize 401k contributions.

The way I'd like to say that, and this is a great question, yes, I may take more in payroll compensation to find the sweet spot on my 401k, because I don't want to take so much that now I'm paying FICA to just get a little extra bang for my buck. It's not worth it. So what I like to do in this situation is you'd have your S corp and let's say, see, and by the way, if you don't have my calendar, the March Kohler calendar has got all the tax data in here. And it's always important to be looking at this this year. Okay? So in your trifecta, we would set up your solo 401k over here. And if you're under age 50, you can do 23,000. So at first, I would want to make sure you have payroll. Even if you could take less payroll, I would want to take more payroll. I'd probably do about 25 grand in payroll because I've got to gross it up for FICA and do a $23,000 deposit in my 401k. That would be bare minimum. Then I could take 10% of the 25, which would be $2,500, and put that in the 401k as a match. So now I put 27,500 in my S corp and I reinvest all the rest of the profit in my S Corp. IRS is happy, and I only paid FICA on 25 grand. That would be a sweet spot in that situation. Now, if you say, well, mark, I make 100 grand and I've got to do 40 grand in payroll. Do what you're required to do in payroll first and let's see where your 401k falls. Here's why I'm getting serious about this. Because if you do 40 grand in payroll, you still do the 23. But now my match is 10, see, because I can do 25% of my payroll. So now my match is $10,000, and I'm up to 33,000 in my 401k. And when I get into the $33,000 number, you may go. And, Mark, that's enough for my 401k. Because you know where else I want you to put your money? In your Roth IRA. Because you could do another seven grand in Roth. Now you're at 40 grand. Well, Mark, I make too much. No, you don't. You're going to do the backdoor Roth. Another strategy of my 75 strategies that too many financial planners screw up. They go, you make too much money, you can't do a Roth. No, we're going to go in the back door, go watch one of my videos on the backdoor Roth. So now we're at 40 grand. Then we're going to do your HSA. Oh, there's another 7,000 plus. Oh, have you bought your rental property this year? Okay, we're going to go put money into my rental property plan. See, I don't want to start taking 80 grand and paying close to $12,000 in FICA when I don't have to. Why put more money in FICA when I can take 40 grand in payroll, still end up with four $40,000 in Roth money and an HSA and go buy some real estate? See, I want to be make sure I'm knocking out multiple birds with one stone. This is why you do a comprehensive tax consult with one of my tax lawyers or one of my tax advisors in my network. There's advisors right now in the chat hanging out because they're like Mark. When Mark goes live, I'm going to be there to help some people out. So check out one of my advisors, interview them in a discovery call. You don't have to hire them, but find out what they're doing. Because if this sounds new to you, you don't have a right Advisor. Bottom line, 50 million Americans have a side hustle right now, and probably 2% of that have the right tax advisor. We're going to. We're creating an army people. And you want to find a tax advisor in the main street tax pro network because we'll save you freaking money and help you live your dream. I'm not going anywhere. And every freaking week I'm going to be here with a year end tax strategy. And today is number one, the S corp. All right, Dana, be ready with another question I want to throw down.

Next question. If an S corp is operating at a net loss, is it still required to do payroll? If the S corp only has one

employee, the officer, did the S corp take draws? If it did, you're required to take payroll. So if you had a loss in your S corp and you didn't take any money out, fine, no payroll. But if you took money out. Oh, I took money out. But we're at a loss. If you take money out, you got to take freaking payroll. That's why it's called reasonable comp. You compensated yourself by taking a draw. And the IRS Says you need to pay FICA on a reasonable amount of your comp. That's where the court cases lie. Now, I'll tell you this. This is a great question, by the way. Can I have a Diet Coke out of there or something? I appreciate it. Here's an important point. A lot of people don't realize this. I have clients that may have a restaurant. They're going to make 200 grand in their small business this year. Okay. But they didn't take out any draws. Do you have to do payroll? Nope. You may do payroll for your servers, your cooks, all your people, but you don't do payroll on yourself because you didn't take out any money. You don't have any compensation with reasonable FICA requirements. So it really, when you look at that matrix, it really comes down to draws. So if you have a loss in your S corp, no payroll unless you took draws. That's the answer.

Next question, next question. What do you Recommend for an LLC that makes less than 50k in 2024?

Okay, so if you have an LLC and did not exceed and did not exceed 50,000 in profit, just stay in LLC, which means Schedule C on your 1040. Let's look at it. Excuse me. So here's your 1040. Come on, 1040, off to the side. You're going to have your schedule C. This is your single member llc. It feeds into that. If your profit is less than 50 grand, you want to stay here because it's not worth the cost of making the S election. That's why this time of year is an important time. I want you to look at 2024. How did I do? Because if I. I have too many quarters there. If I have, if I have profit of exceeding fifty grand, I can back date it if you don't leave it alone. And then in 2025, start over, get through the year. Maybe by June you're like, oh my gosh, I'm making 50 grand. Do an S election then, so you can decide when the time's right. But if you're doing less than 50 grand, don't worry about it. Take all the write offs you can. Let's get your kids on payroll. Let's write off more travel, let's write off more electronics and cameras and gear for your own studio. Then when your profit exceeds 50 grand, we'll make our S election. Next question.

Dane joined Lee. If I start the year as a sole proprietor, is it too late to set up an L.L.C. s election for 2024?

Yes. If you were a sole proprietor all year. And you have not set up your LLC yet. Get it done. But I cannot backdate you into an S Corp unless you had the llc. So this is important, everybody. The LLC is like S Corporation insurance. So if you have the llc, then I can convert you to the S Corp. One of the times, right? My daughter Sydney, she's a realtor out in California. And I remember when she got started, she's like, I guess I get a better get an llc. And I'm like, yeah, why? Don't make me answer that. I'm like, you've been going to my conferences since you were 10 years old. Come on, why do you need me an escort? And she loves it when I tease her. So I was like. She's like, okay, I need to be an LLC because I want to save on taxes. I'm like, which one? You know? Anyway, but the point is, she started out as an llc, as a realtor and she operated as a realtor for two years as an llc. It was great. Then in her third year, freaking nailed it. She started getting more closings. Her 1099 from the broker grew and then boom. We made our S election, kicked her on payroll. Now she's saving money, but if she wasn't in an llc, I couldn't backdate it. So for many of you, the LLC is a great place to start. Start getting used to the bank, the ein. Get used to QuickBooks. File your tax return. I have so many family members of mine in the last month where I was like, I need your expenses. Let's get it figured out. And it's so much better if we're more proactive with that. I myself was doing my QuickBooks this last month. So we all want to be a little more proactive so we can make better decisions. We can be more on top of our expenses, more on top of our income. So get an LLC as being legit. Any other questions, Dana?

Yeah, we have one here from X. What about the reduction in QBI as it relates to S Corp status?

Sure, your QBI deduction is going to go down, but it's only a deduction on your income. FICA is off the top every time. You will save because QBI is only a write off. That helps. For example. Let's have fun with it. I'll throw down here with you. So what? QBI is a qualified business income deduction. It is going to go away if Trump is not elected because we need this deduction as small business owners. So if you want to save taxes, I think you want to be looking at maybe Trump's policies here. If you're a small business owner, the Tax Cuts and Jobs act seven years ago, frequent was the biggest tax break for small business owners. Don't listen to the rhetoric that it was just for the wealthy. Small business owners benefited from this QBI directly. Writing off autos, Writing off our rental property. Freaking amazing. That's a technical term. All right, so here's the deal with the QBI. Here's an LLC. Let's say you bring in 150 grand, and here's our S corp and you bring in 150 grand. We're going to do apples to apples, okay? Apples to apples. Now you're going to have 50,000 in write offs, okay? And you net 100 grand, okay? Same, your same write offs, you don't get any better write offs. In an S Corp versus an LLC, you're going to net the 100 grand, okay? Now the QBI is a deduction that you get to take based on your income. It's a 20%. So I take 20% of this and I might get a deduction, okay, of $20,000. That's great. And if I'm in a, let's say a 25% tax bracket, I just saved $5,000 because, see, it's a deduction. It's not a reduction in tax. It's a deduction that's going to reduce my federal taxable income. But guess what? I still have to pay FICA off the top. So I've got to spend $15,300 in FICA. Oh, but yeah, you're right. But I get a $5,000 tax break because I'm in a 25% back on a $20,000 deduction. Okay? That's how QBI works. You guys know this. Okay? Now on the S Corp, I'm going to do 40,000 in salary. Okay. And 60,000 in net. All right? That's cool. Then I saved now 15% on 60 grand. So I just saved $9,000 in tax. I just saved literally $9,000 in tax. Now what's my QBI deduction? It's 20% of my 40. Okay. Because some people might be tempted to take more salary to get QBI. Don't do it. Don't. So at 20% of $40,000, okay, what is that, about 9, $8,000, right. So I'm going to take $8,000 deduction and I'm in a 25% tax bracket. We'll say in the same, same federal tax bracket. So I just saved $2,000 because I get a deduction of eight grand. Here I get a deduction of 20. Your question is valid. Your QBI deduction went down. But what's my effective tax rate? We'll stay with the same one. 25%. I just saved $2,000 in taxes. Over here I saved 5,000. Okay, so what's the net benefit? I saved nine grand here but lost 3,000 because I could have got more here. So what is the net effect? 6,000 in savings. I still win with the S Corp even though I got less QBI because of that difference. That's it. That's how the math works. I just threw down on that. You see? Stay with the S Corp, drive down your payroll to the required amount, make your 401k contribution and don't worry about QBI. That's the moral of the story. Maybe a couple more questions. Any others?

Yeah, we have another one here that I think you're gonna love. When should an S corp switch to a C corp?

Never.

Revenue based.

Can I just Never. Don't even finish the damn question. Stay away from C Corps, my friends. Watch out for anybody trying to sell you into a C corp. Holy crap. The only time you use a C corp is if I need to set it up as a sister company to the S corporation to write off medical expenses because my client has cancer or something crazy. I'm going to be doing an HRA and hsa. I'm doing my S Corp payroll. I'm doing the Solo 401K. The C Corp gives me nothing. Do not get twisted around going, well, a C Corp only pays 21% in my tax and you know, the individual rates are as high as 37 and a half. And it's called double taxation, people. It never ever, ever, ever works for a small business owner. I've written on it, I've lectured on it, I stand behind it. I've got podcasts, I've got anybody that's trying to sell you on a C corp, have them show you the numbers compared to an S corp and then let one of my lawyers also compare the two and you'll get the right answer. Because whoever's trying to sell you on the C corp is probably trying to sell you a bunch of crap also. You don't need be careful. And I'm sorry, I'm pissing someone off. Some of you are like, well, I have a C corp and it works for me. Really? Do an analysis with us. Do it. Really? We'll stand behind it. Do an analysis and See, we'll compare. Your C corp is if you were an s Corp, rarely one out of 100 times. It could work because you got to zero it out with legit write offs. Good luck. And you still have to take a payroll in a C corp anyway if you're taking money out. All right, last question. Let's do it.

Okay, last question. If I am starting with nothing, do I worry about setting up the trust first or do I set up the llc, make some money then, then assign it to my trust later?

Well, first of all, I want, my heart wants to go out to you here. If you say I have nothing, people I know, I know how hard it is in the economy right now. We see it with our family members. All of us are just trying to make ends meet with this higher inflation and interest rates. It's brutal. If you're starting with nothing, I wouldn't do a Trust or an LLC. Let's start making some money. And with 50 million plus side hustles in America, don't see that as a burden, see it as an opportunity. Let's find a way to make some extra money with a service, a product, a skill, consulting, anything at all that you can go out and start making money and let's just get out of debt and let's get some breathing room. And then I might do the LLC and trust at the same time. You could do one first, the other second. It depends on your situation. How much money are you making, where you at, everything. So just, just start with your side hustle. Get that idea off the ground as soon as you can afford a planning session with a real tax advisor that's going to help you make those critical decisions on expansion and growth. It will totally help you scale. It really will. Don't just go online and start clicking buttons and setting it up. An LLC. We have services that are fixmyllc.com because it's just a mess when people are out there, so be, be careful. Now I want to give you these and if you're just have nothing and you're getting started, go out and make $1,000 and come to Tax and Legal360. Tax and Legal360 in six weeks is where we're going to be networking with other professionals and business owners from around the country for three days, learning tax and legal strategies that actually move the needle that will save you thousands before year end. If you're a tax advisor, you're going to get over 20 plus hours of continuing education as an enrolled agent, a CPA, a CFP or a lawyer. You're going to have all the CE you need for the year. You're going to have a blast. You're going to make friends with other advisors and business owners getting clients. The corporate sponsors are incredible this year. It's so exciting. So if you can get down in there, it's in the notes. Get to tax and legal360. We have a BOGO where you can get your friend half off for a general ticket or half off a premium ticket. When you bring your spouse, your business partner, your child, bring your kid. Make the difference in your kid's life. Bring him to an event where you actually learn how to save people. It's easier to save money than make money. Don't you go to some rah rah rah conference on how to make money. Why don't you go to a conference once in a while on rah rah rah? Let's learn how to save money and stay structured and stay out of a lawsuit. Number one, cost in your life, taxes. No one else talked about it. They say it's too boring. They say it's too complicated. Not intact. AS LEO360 I'm on the main stage talking like this for three days off and on, helping build your future. Please come now. For those that are professionals, get over and do a demo@markjkohler.com on my tax advisory program and also the CE flash sale. Unbelievable. Get over. It's a tax pro tax talks.com and use the code down below to get 50% off the individual class or 75% off for five classes. Five continuing education hours that'll blow your mind. They will literally increase your tax and legal consultations before year end off the chart. You should be charging $500 an hour to do an awesome tax and legal consult for year end. All right everybody, thanks so much. I will see you next Thursday for another year end tax tip. And we're going to keep doing this all year long and I'm going to blow your mind and we're going to have a lot of fun doing it. And I want you to roll into 2025, saving taxes and in control of your American dream. Thanks so much everybody. Please subscribe like share and let's blow this community up. We're on a mission.