Tax attorney Mark J. Kohler explains when to use an LLC versus an S-Corp. S-Corps cut payroll taxes on service income by letting owners take a salary and dividend. LLCs work better for holding rental properties and assets, though some states charge more to operate them.
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Hi, Mark Kohler here with the two minute tax and legal tip. Let's talk about the difference between an LLC and an S Corp. Now there is so much misinformation out there and just because there's longer YouTube videos doesn't mean they're accurate. Moreover, a lot of people think oh, I can just learn about it for a few minutes on the web and then click, click with a mouse and then make a big mistake. So let me hit the highlights and break down where you might use an S Corp or llc. Now when I do this planning I like to divide clients lives into two sides. That's short term and long term. Short term, long term, short term or long term deals. This would be ordinary income, this would be passive income. Ordinary income is like commissions, selling a service or selling a product. The passive income would be rent, long term gains, capital gains, royalties, interest, dividends. They're going to be taxed very very differently. So what we want to do on this side is start with maybe a sole proprietorship and then graduate to the S Corp when the time is right. That's the S corporation where money comes in and I do what's called a salary dividend split W2 versus K1. This allows me to save on FICA, SUDA, FUTA, Workers Comp and save on even Obamacare. So the S corp is powerful for ordinary income, but I'm not going to hold assets here. That's where I throw in the llc. The limited liability company is for holding assets, doing investments, building rental properties and having partners with long term assets. LLCs are great for holding assets but they don't save taxes. The second place we might use an LLC is on the ordinary income side but with the use of S Corps. So we have an LLC for partners where they each have their own S corporation. So that way I can have the tax savings for each partner. So but have an LLC for partnership protection and creative planning for allocation of income and expenses. So LLCs are great for partnerships and they're great for holding assets. But folks, LLCs again don't save taxes and in some states they can cost you more. So bottom line, get a consult, get some support. Our law firm is amazing. We've got five lawyers helping clients all over the country setting up entities in all 50 states. You can either do the cheap legal zoom setup route or get the full service of an attorney consult that will design the right entity for you or 400 bucks or 800 bucks. So affordable. Give us a call, check out the website below and hope to see you on the back side. Thanks. If you thought that information was amazing and helpful. I have so much more to share with you. Please look at the links below and head to my website markjkohar.com you can subscribe to my weekly newsletter. Check out my weekly radio show. I have my online videos for tax and legal strategies that will save you thousands. Ways to learn quickbooks with my fun videos online and also if you enjoyed it, please leave a comment and give it a like and follow me on YouTube. I promise that these videos will change your life. Thanks so much.
