When to Set Up an LLC for My Business | Main Street Business Podcast

Welcome everybody to another episode of the Main street business podcast. My name is Mark Kohler, tax lawyer, small business advisor, real estate investor, surfer. Just a workaholic essentially. That's all I feel like I can brag about.

Author of four books.

Yeah, that falls into the workaholic category.

Okay. Yeah, that's a. That's a hodgepodge of many things. Yeah.

And I'm here with my amazing co host, Matt Sorenson, also an author and tax lawyer. And now he plays the electric guitar and he is a biker, but technically I should say a cyclist.

Yeah, yeah, yeah, Bikers like Hell's Angels. You know, I'm not that cool. You know, I just ride a bicycle and wear stretchy clothes and shave my legs. Pretty cool.

And you raise hell just in different way. Yeah, I know, I know.

Many cars passing by think that. And so.

Well, hopefully folks who fell upon our podcast to see in the title there about Should I set up an LLC for my business? Well, for the last 20 years, Matt Sorenson and I have owned a law firm. We also have a sister accounting firm and a trust company helping people self direct their IRAs and 401ks, which is going to come up in this LLC conversation. We want to help you decide what this LLC things about. I mean, there's all sorts of questions that come up. Where, when, how, Matt? I mean, just.

Yeah, our law firms probably set up. We set up approximately 100 LLCs a month, maybe 75 to 100 LLCs a month. We're doing over 150 entities. There's other entities out there s corporations and limited partnerships. There are things to think about, but we're gonna just zone in on the LLC and just let you know how to use it, when you should use it, how it gets set up. Just kind of the rules of the road, what people are doing that are dumb, what you shouldn't be doing, because there's a lot of bad advice out there. So we've been in the trenches. We've helped thousands of clients, business owners, real estate investors use LLCs. So we're gonna break it down for you today.

Yep. And this is a simulcast on YouTube as well. And so some of you are going, what is he doing? Well, I am trying to squeeze in a little lunch here at some point today I'm pouring a little diet co I already drank my rock star for the day. My doctor said only one rock star a day. Because Mark, you don't need any more. You're already a rock star. So just don't overdo it too Much good thing.

That's true.

Yeah, there's.

There's too much rock star in your life. I think there's, you know, like Keith Richards and there's a lot of guys that have gone a little too far. Kurt Cobain, they rock starred a little too much. So we don't want that to happen to you, Mark.

Wow. Well, I'm in the Kurt Cobain category today. I'm loving it. Now here's another quick disclaimer. And then we're just going to. I think, Matt, I are just going to tag team some stories, some examples, but here's the important thing. I know there's some of you on here that are at one extreme, that are like, I already know this. I go to LegalZoom to set up my LLCs. They're cheap and easy. Tell me where. I don't know, guys. Well, I just had a phone call this week from a client of mine that has probably 70 entities worth $10 million doing a project and said, text me and said, mark, I need five minutes. He goes, do I need an LLC for this? And I go, well. And that was his question. He knows better. He's learned that he doesn't know what he doesn't know. And we implemented a strategy that was freaking unbelievable. And he loved it and was like, oh my gosh, that reminds me, I need to call you more often now. The call didn't end up being just five minutes. I was like, blah, blah, blah. He's like, oh my gosh, I need an hour. Can you squeeze me in? I got him with one of our associate attorneys, followed up with him. We were good, but it wasn't terribly expensive. It wasn't a 3 or 5 or $10,000 bill by any means. And he got answers to a very complex situation that he didn't even know existed. Then on the other extreme, I know there's some of you here going, I don't even know what a frickin LLC is. I just started my own little business on the side and you know, I listened to who's It Minaj? What is it the song Matt, you were gonna play for us today?

Yeah, Nicki Minaj. You know, we all know the great. I mean, I'm sure all of us know the great Nicki Minaj song called llc. So about how cool it is to set up your llc. When you get, you know, when you get it big, you go big time. You're somebody. You have an llc.

Yeah. Now my producer over here, he said we can't play that on the show because YouTube will flag it for copyright content.

But I think pretty explicit. It's pretty explicit.

Oh, is the LLC explicit?

Nicki Minaj is when she talks about it.

Maybe I better listen to that.

All of a sudden you're interested now in this LLC song? Before you're like a song about llc snooze.

Corey Hori producer's like, no, we're not playing it. You'll be shot down on YouTube, but apparently on itunes. We could get away with a little bit more. But it's a rap song. You know, it's funny, I said to my kids, I was talking about the vice president, Pence, and they're like, who's Pence? And then, you know, we started talking about Tyler Perry and his clothing line. They're like, oh, yeah, look at his new shoes. I'm like, hold it. You don't even know who the vice president of our country is. But you know the new shoe line that I don't know. Who was it? It's like $4,000. It wasn't Tyler Perry. He was doing totally expensive.

This is bad.

Okay, whatever. We got to get off this. All right, Back it up. All right. My producer's like, move on, move on.

Okay.

All right. You said that you too. Okay. You do know who the vice president is. All right, our producer says he knows who the. So at least the guy behind the camera knows. Okay. All right. So LLC could be from a very complex situation to a very basic. Matt, which one do you want to talk about first?

Well, I was gonna give a little tip about the irs. I mean, do you want to hit that?

Fine. Take us off the freeway. Let's take a quick exit, get a little brief.

Just a little interruption here. This is exciting news, right, from the irs. Just last week, you can amend your tax return with the IRS online now. I mean, you know, you, of course, can always file a new return online, but you could never amend. This is a new cool thing for those tax geeks out there. And we have other CPAs and attorneys listen to the show and, you know, so you guys know this now. It's great. And of course, for everyone listening, if you want to amend and get money back from the irs, you've only got a three year window to do that. So now it's cool. You can file online. It makes it easier. We're all used to filing online. You can file. It's a 1040 X is what the amended return is, so. And with all the cares act stuff, and Mark and I have done prior shows on that there's carry back losses for you business owners you can use to actually go back and amend prior years returns to get money back. Yeah, there's so much great tax planning to be done from the CARES Act.

So Matt just said a very little golden nugget that many of you may have thought, blah, blah, blah, men return. No, no, no, listen, under the new CARES act, when they rolled out the PPP and the Eidl and unemployment and

GOP stimulus checks, all that good stuff.

Stimulus check. We're talking $2 trillion of crap that they threw at America to help Covid. One of them was if you have a crappy year this year in 2020 and you've got a loss in your business, and I know some of you listening that you do, that's you when you file your return in January or February, you want to file it right away. Now some of you are like, I don't want to file it. It's, it's PTSD. I mean 2020 suck. I lost money. No, no, no. You want to file right away. Then any loss can be taken retroactively on some prior year returns. We won't get into the details, but it's actually accomplished through an amended return. And so that loss will get you a refund for what taxes you may have paid for 2019 or 2018. So you want to talk to your accountant right away. And if some you hacks out there, you know, the engineers that want to do this online on TurboTax brings up our group text earlier this week. Right. And be careful. Get a little advice on this in, you know, if I'm going to design a building, I call an engineer. But for some reason when engineers want to do a tax return, they think, oh, I can do this.

Surely, you know, all the same. Right. It's all just math. So. Okay, well, there's a little interruption on a quick update from the IRS that could actually save you some money. That's a big item and a lot of people are facing that tough year in 2020. So. But if you're new, by the way, I just want to say Mark and I have so much content in prior shows on the CARES acting stimulus available for business owners. So you might want to check that out. Okay, let's talk about, should I set up an LLC for my business? I think the first thing to think about is what does it mean to be in business? Like a lot of people are like, I've got an idea. Should I set up the company now or do I start doing something like what's the right time to even be thinking about this question of setting up an llc.

I like that. I like it. I think another way to say it too, and then we'll answer this is what are the reasons to set up an llc? And I like to. I've got three or four reasons that it makes sense and there's two or three reasons that people think require an LLC and they don't. And so just to play off Matt's point, if you're just testing your product, if you're just writing the business plan, if you really aren't out of the gate, you're just kind of in that test mode, you might have some startup costs. If you're not creating exposure in some sort of liability fashion, I don't think you need an LLC out of the gate. A lot of people go to a workshop and like before you do anything, start up your llc. No, I don't believe in that.

Mm, yeah, I totally agree. Okay, let's hit like when to. When did we start thinking about this? All right. And let's maybe actually start with the reasons, because that draws out what, When? I guess because you have to have a reason to need it. Yeah, I'll give the first reason.

Okay, you go for it. Low hanging fruit.

Okay, let's talk about. What does an LLC mean? It means Limited Liability Company. That's what LLC stands for.

Not corporation. No, Limited Liability company.

Exactly. Good, good. Well, how many. I know people put corporation on all the time. They do, they do.

It drives me crazy.

Corporations, a different thing. Another show, Limited Liability Company. Now, the first thing in there that you should pay attention to is limited liability.

Matt, little sidebar. Yep. It's a banana split, not a banana stick. So you got to get. Right now, if you want a banana on a stick, you know, you go to the banana stand.

That's right.

You want a banana split. Dairy Queen. Now, for you viewers of our favorite show, Matt Free, where's all the development?

You know, all the money is always in the banana stand.

Alright, okay, so let me hit llc.

Limited Liability Company. So there's limited liability. This means if you have a LLC for your business and your business gets sued, they can't go after you personally. This isn't Matt Sorensen, sole proprietor. This is Sorensen Enterprises LLC or whatever. XYZ Properties, llc. Whatever happens in that business, the plaintiff or whoever's going to sue me has to sue the llc. They can get what the LLC has. But there's something called the corporate veil that has this limited liability protection that Prevents them from going after the owner of the business.

Okay. And for all of you that have been doing business your whole life and think you could give this same speech, let's add a twist. Let's say you already have a company and you're making money, but you're going to expand. You're going to go into a different line of business. You might start selling a new product, a new service, open a new location. Should I set up an LLC for that spinoff? Well, if you don't and something goes wrong in that spinoff, they can get it the parent company. So this is why larger companies have all these little baby subsidiaries that are owned by 100% by the parent, and they start setting up some corporate bails between the two. We've got a story we've shared on our prior podcast. I don't know if I can direct you to the one, but there was an insurance company that had a plane. The plane was in a subsidiary llc, but they commingled everything they paid for employees out of the main company. And they didn't spin off all the operations or the money. They just set up an LLC and thought they were fine. The plane crashed, major lawsuit. The parent was liable. So for you seasoned business owners, just setting up an LLC with one sheet of paper on LegalZoom doesn't mean you get that bail automatically. You got to do. You got to follow through, which I'm sure we'll come to. So, again, I just, I think, Matt, that's helpful to say that you could be brand new, but you could also be seasoned and have the same quantity.

Yeah. And so this limited liability, a lot of times we refer to this as asset protection. That's the one of the reasons people will set up an LLC is for asset protection. Also, for the real estate investors out there, you know, I've got a rental property and I own it in my personal name. If the tenant slips and falls, they're going to sue me personally. They can get at my personal assets. They can garnish my wages, my personal bank account. It ain't good. But if my property's owned in an llc, they have to sue the llc. They can't sue me personally. And again, as Mark talked about, with subsidiaries, you may want to have separate LLCs for your separate properties. If you have enough equity and enough stuff to protect. Sometimes it's good for those that are larger investors with larger equity and properties to use separate LLCs or even series LLCs, which is. We have a whole other show on that.

Yep. And just A little sidebar. I love that I'm color commentary here with Matt, and it's because I have more of a tan and he does not. I don't hope that no one took that as racial. When I say color commentary, I try to be very careful with that. So forgive me anywhere, you know, I'm trying to be racial. But on the color commentary here, I would say with an llc, with rental property, you could put two or three rentals in one llc. We're okay with that. We're not implying that you set up a new LLC for every rental. The other thing is to keep in mind is that having a rental is a business. It's a business. Don't kid yourself. And so you've got exposure. And by setting up an LLC for your rental property, you're creating that bail from your tenants. And we want to do that. We want to try to create that barrier. And that's why an LLC makes sense in that situation.

Right.

Love it.

Okay, what do we want to say about asset protection? Anything else on that? I mean, this is the intro, guys. We got a lot of stuff on asset protection in prior shows and such.

But there's something I was going to say and I forgot about. I forgot it. And it was about.

I want to talk about the documents and how you maintain your llc. We're going to come back to that because there are certain steps you got to do to make sure you're actually getting the asset protection.

Okay.

And we're going to go through how you actually set up an llc, the documents involved.

I remember what I was going to say. And some of you rental property owners are going to say, well, the bank may be. Put it in my own name. I can't move it. Or there's a due on sale clause. I think we've had one client in 20 years. Have the due on sale clause become an issue? Because I think they walked into the bank and asked, can I? And they alerted this local small bank and they freaked out. But 99.9% of the time, you're just going to transfer the title into your LLC after closing, you're still a personal guarantor on the loan. By putting it in the LLC doesn't mean you get out of paying the loan. You have to pay the loan. But they've already sold your mortgage in the open market five times over. As long as the servicers receiving your payment, they don't care where the checks coming from. And I've talked to so many banking lawyers are like, we don't care about it unless we're pissed off at the customer anyway for something else. So don't, don't stress out about the due on sale clause. Okay?

All right, what's the next. What's the next reason you think? You said you had three or four. I hit number one. Asset protection.

It is number one. And that's again for you seasoned business owners spinning off ideas and locations. It's very common. If I have a restaurant owner, they might manage payroll through a holding company for payroll, but have each restaurant be its own operational entity. And then if they own the restaurant buildings, those could be separate entities. So we've got this dynamic between assets and operations which brings up taxes. Should I set up an LLC to save taxes? The answer is maybe. And here's LLCs do not save taxes. Hey everybody, listen to me. Some of you are pissed already. You're like, these guys are crackpots. There's no way. I am a licensed CPA in about six states, an attorney, author. I speak around the country on this. Let me tell you right now, llcs do not save taxes. Now if you have an LLC taxed as an S corp, you're going to see some self employment tax savings and some strategies. We talked about the fact Joe Biden has an S corporation for his books and speaking. He is using the S corporation. Millions of dentists and doctors and realtors and brokers and developers and engineers and plumbers. We all use S corporations. They are the perfect entity for an operation small business on main street. But if you don't make the S election, the LLC is going to act just like a schedule C as in Charlie, and you're going to pay self employment tax on every dollar. So if you think, oh, I'll set up an llc, I'll save taxes. Nope, you're screwed. Maybe of this is the LL. Setting up an LLC now in the middle of 2020 allows you to see how the rest of the year goes. I can backdate the LLC into an S corp. There's not a 75 day rule every time. We've got ways to get around it. And so I think of the LLC in this second reason as S corp insurance. I can set up the llc and I've just bought myself some time. If I end up filing as an llc, I didn't make a ton of money. Fine. But if I need to make the S election, I can. So that's the second reason to me, man.

Yeah. Okay, so it has some tax flexibility. Now remember when Mark says making an S corp election, that is not Changing it to an S corp, it's still Vandalay Industries LLC. Okay, Vandalay Industries LLC. the state and your company name and all your legal documents, you're still Vandalay Industries llc. But to the irs, when you make that S election, you are an S corporation for tax purposes. You file S Corp tax and there's savings on that. We have power of the S Corp podcast that goes into the S corp, but you don't do that immediately if you're brand new or you got a side hustle. You make 10 grand a year on, 20 grand a year on. You may set up an LLC, but not do the S election yet and be taxed as an S corp.

So on that note, by the way, I'm just plugging in my laptop. I'm running out of juice here. Number three, corporate credit. Now, I'm not saying this is number three in importance, but I've kind of got this mod podge of 3, 4 and 5 where setting up an LLC sooner than later can really open up the doors for some planning. Because you might be an S corp down the road. You want to get legitimized with the irs. You want to get a paydex score, you want to get a Dun and Bradstreet number. You've done a little study on corporate credit. You want to make sure that you're getting that credit worthiness built inside the llc, which will ultimately become your S corp. You're not going to do this with a holding company, llc, not for a rental. But if this LLC is going to ultimately be your operations, why not get that corporate credit clock ticking? Because, for example, if you will go get an SBA504 loan, I was just talking to a client yesterday. If your LLC hasn't been around for at least two years, you don't even qualify. You've got to have two years of operations before you can even get a 504 loan in the name of that LLC. So you might have to get a 504 loan in your own name, set up an LLC. But the LLC is not on the promissory note. You are. So there's some differences there. And so I'd say corporate credit. Matt number three.

Yeah, I like that. That's good. The next reason I would say is for partnering.

Okay.

We love the LLC for partnerships. Mark and I have some LLCs that are partnerships that own rental properties and real estate. Of course, our law firm is an llp that's a limited liability partnership. That's like a limited liability company. For professionals, because it's a professional law firm. So LLC is work great for partnerships. It's a great entity that you have what's called an operating agreement. So you file your llc, your articles or certificate of organization with the state, and that's the document that everybody thinks. They just, you know, that you do on LegalZoom. And you get a little piece of paper that has a stamp from the state that says, you know, vandelay Industries LLC is approved in the state of New York.

Okay.

And then. Do you love my Vandele Industries jokes? I'm not getting much laugh.

Oh, my gosh, I love them. I mean, just because we're huge Seinfeld fans. And of course, Bandelay Industries is what George Costanza always wanted to set up. He always wanted to be an architect. So if you're a Seinfeld fan, I tend to prefer Cramerica. The hiring of an intern to test a rubber bladder of ball of oil. Yes, he dropped that out Jerry Seinfeld's window. So two very important companies in our

history, and I love George and Jerry. They're trying to run into a girl that I think George met, and they are staking at her office buildings. Like, who are we here to see, Art? I don't know. What's his name? His name?

Art Vandeley.

Art Core. No, he's like, Art Core. Art Core. Sounds made up. How about Art Van De Core? Art Van Delay? It was the whole thing on Vandalay, so I love it. It's funny. Okay. Partnering, all right. It's a great entity. So you have your articles with the state, but you also have what's called an operating agreement. Now, an operating agreement, another better descriptive word may be a partnership agreement. It's going to say how the company operates amongst the partners. What's our voting rights, who owns what piece of this, who has management authority, decisions. What are the. How do the taxes get split up on the tax return? Okay, it's going to go through all that in the operating agreement or partnership agreement. And when you're partnering in a new business, that document your operating agreement for your LLC is critical because you've got to outline who owns what, who's going to do what, who has authority making and management decisions. Those are such critical items. And we love to use an LLC for. It's the most flexible entity for tax purposes amongst partners. And it's a great entity for asset protection, as we talked about. You still get that asset protection? Every partner gets it. So consider the LLC for partnerships now.

And what's interesting here again, and I say this respectively to all of you out there that have maybe set up your own entity on LegalZoom or whatever the case may be. Matt's comments there just literally triggered three separate issues that if you don't know they're out there, you're not even going to ask about them or talk about them. And a good tax lawyer that's setting up an entity for you, not somebody in a cube because you bought Unlimited LLC is for 10 grand. This is someone consulting with you on each little project in an affordable manner. The one is, as people go, well, I'm setting up an llc. I should make my spouse my partner. Not particularly. And not that they aren't your partner and it's a community or marital asset more than likely anyway. In almost every state you were married and you set up the LLC while married. And there's different rules called community property or non community property states. But that LLC is going to fall in a marital property asset if there was a divorce. But does that mean I have to make them a partner? No. In fact, I will usually on a phone call say, so who's the primary business owner? Now, you might be working together on it, but who can I make the hundred percent owner? I can make you co managers, but if I make it 100% owned, then it becomes what we call in the industry a single member llc. Now, a single member LLC means no extra tax return, easier filing procedure, and it's a cheaper entity to maintain. You can still make the S election later. I can always pay your spouse profit. Your spouse could ultimately be on payroll and all those things. It doesn't mean we've, you know, screwed that up. But throwing your spouse on the ownership can trigger thousands of dollars in tax prep fees a year from now you don't even know is coming down the pipe. So be careful just making your spouse an owner because you think it's the right thing to do for your spouse.

No. Yeah, yeah, yeah. You don't want to live him or her out. I get it. Some people like. And in some states you can do it because it's community property. But again, there's so much nuance to some of these little decisions you're making when you're clicking a button online. I don't think a lot of people think about. Also, again, this is where my brain starts going off on other things. What if I had an estate plan? What if you have a trust that was set up for your estate plan and now you're setting up an llc? Well, who owns this llc? We want your trust to own the llc. Alright. You want to coordinate your estate plan. This LLC owns a business or it owns rental properties. You want that to be coordinated through your estate plan, don't you? You don't want it to go to probate. Oh, that's the worst thing to go to probate. A rental property in another state. You kidding me? A business that's got to be operated when you pass away. You don't have time to go to a probate court to say, what do we do with the business now? And who has authority? And can we get some orders from the court, please? Come on. So you want to make sure your trust for your estate plan, which is your basic family trust or vocal living trust, which all of you should have. Okay, we're all going to die. We need some estate plan that would be the owner of your LLC as well, if you have it.

Yep. And we do estate plans in all 50 states. We charge 1500 bucks as our base and we get Most of our 90% of our clients done for that rate. But for all of you that have lots of moving parts, more money and you need more time, we'll just all a cart the time. On top of that. It always creates a lose situation when someone pays 5 or 10 or $15,000 for an estate plan because either you paid for work that was never really needed, or the law firm or account or whoever's doing this, Hopefully a law firm spends far more time than they wanted to and they lose. So we just started a base that's fair and then work up from there if needs be. And we have an asset protection package that includes an estate plan like 27, 50. So now you're getting both and you're getting a diagram and an asset protection review and all that for under three grand. Those are our prices that we feel are very fair for Americans across the company, across the country. And I just bring it. And this is not an infomercial, but when we start talking about a lot of people go, yeah, easy for you to say. It's going to run five or ten grand in legal fees. No, it doesn't. And if some company out there, and I know who they are, and there are competitors, are charging you 5, 10, 15, 20. I talked to a client last week that was pitched a $35,000 estate plan. I don't care how much you're worth. Literally, I literally don't. That is off the chart, unnecessary. Now back to some of the things Matt said. Now, Matt said you want your Trust to own the llc. That's right. If it's a holding company, maybe Matt and I buy a rental property. I want my trust own half. Mass trust owns half. But let's say it's an operational entity like a law firm. Our law firm is an llc. Well, what tax am I worried about, people? We talked about it earlier. Self employment tax. So if I'm running an operation, that LLC is, like Matt said, a wonderful partnership entity. Because I don't want to set up a new S corp with Matt. I already have an S corp. Matt's already got a new S corp that's got an S corp. So I want to set up a new LLC that's owned by both of our S corps. So now this is where on YouTube and in our workshops. My fall workshops are starting to ramp up. We're online at MarkJ Kohler.com MarkJKohler.com youm can look at the workshops that will be online and maybe at certain locations I get a whiteboard out and we talk about this. You've got LLCs for rentals and LLCs for operations. Your S Corp owns your operational LLC, then your trust owns the S corp. So, Matt, that's why when Matt's statement was made, I was going thinking about like 10 different issues. And that's where consultation goes.

Yep. And that if that LLC and S corp thing got complicated for you, chill. That's if you're doing a partnership, you got a business going, you guys are making some money. All right. You don't necessarily need to start with that. You can just start with a regular LLC that you guys own. Add the S Corps in later if you're starting from scratch. If you already have an S corp like Mark and I do, then you just put plug your S Corps in to own your 50% of the entity or, you know, 60, 40, whatever your deal is. Okay. Any other reasons on the setup? I want to go, of course, through the process and what it takes and make sure you've done it right.

Yep. I got a couple more. This sometimes is the primary reason I want to lock down a name. I want a trademark. I want to get legit. And I may not have a tax issue, I may not have a liability issue. I may not be partnering with anyone. I may not even need to start corporate credit. But I want to lock down the URL. I want to lock down a trademark nationally. I want to get a tax ID number, I want to open a bank account, and I want to be legit. It could be a situation where Clients that are looking to franchise, the franchise is going to require an entity. They're going to require all these pieces and parts. And you may be going to a bank for a loan, SBA loan. They're going to want to require this legitimacy. So if you're going to move forward and you know the business is going to happen, then I want to. I want to talk about. The legitimacy is a very important reason to open up, even if the tax savings and the asset protection comes later. Matt, I'm gonna let you talk about where. Can we talk about where for a second?

Okay. Where? This is one where I want to say, don't be duped. Okay. We run into so many clients who get scammed. Let's. Let's be honest. I don't know how else to say it. They're told that you need to set it up in Nevada, Delaware State, or Delaware. That has nothing to do with you, where you live or your business, or where you may own a property or anything. You have no connection to it. But someone told you that some AM radio commercial said, hey, set up your company in Nevada. They've got the best asset protection and privacy and all this. Sorry. The general rule of thumb is we want to set up the LLC in the state where you're doing business. Where do you operate? If you're in California, and I know California, you've got this $800 fee on LLCs every year from the Franchise Tax Board, and it sucks. But if you're going to be doing business in California, you have to pay that fee. Even if you set up an entity in Nevada, you're still gonna have to pay the 800 bucks to California. They're not letting you off the hook because you went next door to Nevada and set up your llc. I'm sorry, that didn't work. By the way, Nevada's annual fee is 400 bucks. So now you're paying Nevada and you're paying California because you got some bozo advice. So. And this goes for all states. We general want to set up the LLC in the state where you're doing business now. Sure. Do you want to go be a publicly traded company and you're going to sell, stack on stock on the nasdaq? Okay, maybe go to Delaware, but most small business owners, that's not our goal. We may want to get bought one day and sell our business, have some value. But we're just trying to operate and run a business. Don't get sucked into this Nevada, Delaware mayhem. It ain't worth it.

Totally. And to Add a few details to that, some trimmings to the course if you may. This is the cranberry sauce.

Sounds delicious.

Yeah, so delicious. I love cranberry sauce. I so good. If it's rental property, the same applies. Let's stick with Matt's example. I live in California. I'm a realtor, I'm an engineer, I'm a dentist contractor. So I need my entity set up in California. We're going to look at tax issues and maybe it's an S corp in California ultimately. Oh, and then I bought a little rental property in Detroit, Michigan or Kansas City, Missouri or. And I bought this rental property out there. Do I have to register the entity in California?

No.

I'll come back to this though. I have to register the entity for asset protection in the state where my rental is. That's number one. So I go out and set up my Missouri LLC. We have a paralegal service is 450 to meet with an attorney and get a consultation and get it done right. 800 bucks any state. Now we're off to the races. So I set up my Missouri entity but back in California I don't have to register the entity foreign but I do still have to pay my franchise tax to the state of California. So I register as a foreign entity and pay my minimum 800. But the gross receipts amount does not scale up because I'm not doing business in California. To the point I have to pay the gross receipts tax scale, it's just 800 bucks but I don't have to file with the Secretary of State. So that's kind of a unique nuance. Now here's a way to get around it. If you're not a manager of the LLC in Missouri but your son or daughter that lives in Texas is serving as your manager, you don't even pay the 800 because you're not a manager actively participating in the LLC in Missouri. So see these little tricks and nuances that keep you out of problems in California. We can walk you through that. Yeah, we missed probably number six or seven on our list of why set up an llc? But maybe I want to self direct my retirement accounts.

There you go. You may want checkbook control, so to speak of your self directed retirement account. So that's our company directed ira. We have lots of clients who use their IRA to buy rental property or to invest in private companies or do some private hard money lending. You can do that with a retirement account. We have thousands of clients@directed ira directed ira.com where we do that and we help those accounts. So but many clients like to have an LLC. They'll have their IRA, own an LLC 100%. And they that LLC, that IRA invests its cash in the LLC. And now we've got the checkbook for the LLC. They can go out and invest, buy a rental property, use the LLC for asset protection, have a checkbook with it. We've got lots of content on that. But that's another reason people will set up an llc. And we set up quite a bit of those for our IRA clients who want to self direct. You don't have to have the llc, by the way, to self direct, but some clients like it, particularly rental properties, so they can have a checkbook and

more control of it. Well, and I'll say this, you have to have an LLC if you're going to pool multiple retirement accounts. There you go into a deal. Now I'm going to show this diagram. I covered up the account numbers because in my diagram I wanted the account numbers. But this is a little Kohler family LLC that we've set up and I've got nine partners each one of these partners is a Roth account that my one is mine, one is my wife's, one is my son, his wife, my daughter, her husband, and then my two other kids that are unmarried. We have Roth iras and then our health savings account. So this is a new little company we formed in the last month. All these accounts are directed ira. I told my kids, go online in the middle of the night, fill out the DocuSign form, done. Boom. So you can set up these accounts anytime. We funded them. Now the LLC is up and we're just about done funding the llc. And then the LLC can go out and do a variety of businesses. So this is our little family LLC owned by retirement accounts. And when you get on a phone call with one of our attorneys, they're going to create a diagram, decide which entity is best, how many retirement accounts are in it. And Those types of LLCs are going to be around 1500 bucks just because there's more moving parts and we want to give you comfort or security that it was done properly and protect you from the IRS.

Yeah, yeah, those. But if it's partnering with IRAs, if it's just one IRA owning an LLC, it's a hundred bucks. But, but the partner like shipped by cart. 1500.

Yeah.

800. Yes, one IRA owns an LLC. 800. What did I say?

100%.

I heard on the podcast Matt said $100. All right, okay, okay.

Once I set up these LLCs. Matt, what do I do?

All right, once you set up the llc, let me say the first thing. You might have to make sure you have the right documents. Okay, Let me. Let me say that. Let me see the minimum things that should be involved. You're gonna have your articles or certificate of organization. That is the one page doc. And a lot of states have a form or maybe it's two or three that's filed with the state and approved. Okay. That's not the only thing. When a lot of people here.

Oh, I.

Legal Zoom will set up for 200 bucks online or 99 bucks online. That's all they're doing, just this one little piece. Then you're left doing everything else. Or they charge you 100 bucks for every other piece, which by the time you do the whole thing, it's 700, $900 to set up. Okay, so that's one piece. Your articles are organization. The next thing is you need an ein, or tax id.

Okay.

This is a number that will be used to set up your bank account, even if you're just a sole proprietorship. You're like, Matt, I'm just going to put it on my schedule C on my personal tax turn, like, I'm a sole proprietor. I'm not doing the S Corp thing yet. I don't have a partner. Why do I need a tax id? Because you're going to want a bank account. The bank account wants a tax ID number in the name of the llc.

And, Matt, I want you to keep on the list, but I want to let everybody know if you're freaking out going, I already set up my llc. This is salt in the wound. Now I've got to do it over.

No.

We have what's called a cleanup service, where if you've already got pieces and parts, but not the whole thing, we don't want to throw the baby out with the bathwater. So as Matt's going through this list, don't let the anxiety rise. We want you to contact Susan or Christy. That's Susan Kumpy with a K, as in Kohler or Kristy Rice, as in that wonderful sticky rice you have with your Asian food, Christy Rice or Susan Compy. Give them a call at our office, and they can do what's called a cleanup. And the price will vary based on the parts you're missing, but I love that Matt, keep going. I just want to let people not freak out. They're going, oh, I've got to redo everything. Nope. You know?

Yep. All right. You're going to have an operating agreement for the llc. This is critical. In fact, it's in the operating agreement where you claim that you have limited liability to the members and you claim you have limited liability for the managers. All right. There's statutory protections for this. This is where the company is claiming it is in your actual operating agreement. Think that's important? Yeah, kind of important. That goes back to number one of asset protection.

Oh, I forgot another reason. Oh, my gosh. We're gonna have to summarize these reasons right now, because I think this. Can I interject one? Let's just summarize right now. Our reasons were protection. I can't believe we forgot some of these. We got to put them in the proper order of priority protection. Tax flexibility for the S Corp. Yep.

Corporate credit Corp. Credit partnerships.

Okay.

Used for partnering.

We talked about legitimacy, legitimacy, retirement legitimacy and reserving the name. Yep. Retirement account bundling or protection or access. So retirement account strategies. Privacy. Totally forgot about that. So this is what's fun when you're setting up your llc. This is. These are the questions that you're clicking buttons is Fast and Furious online with the state or legal zoom. You miss out, do we want your name in the llc? Do we want your address out on this llc? What are my options to create some anonymity? I want a very innocuous name. That's a word for, you know, Green Tree LLC versus Mark Kohler llc.

Yeah.

And so, Matt, as you're talking about operating agreement, you said articles in ein. Why don't you mention address? I don't want to. I cut you off again, so I just want to throw that out.

Yeah. So you are going to put your address down now. If you want to keep it cheap and easy, you can use your address. If you're. If you're in the state where the business is operating, you can use your personal address. It doesn't have to be a separate office address. Now, you may not want to for privacy purposes.

Okay.

Everybody's got a little different, you know, feeling for this. And some of you are more known publicly and can be Googled and you can find everything. Some of you have been like, hey, I'm trying to keep it private, or I'm trying to work backwards here and not be so found. So for privacy purposes, you can use. We have a mail forward service where you can use our office mailing address. We have a registered agent service in all 50 states where we will be your registered agent and registered office in that state to receive legal notices. These are some requirements when you file with the state you have to comply with. You have to give them a mailing address, you have to have a registered agent and office address in that state. And so if you don't want your addresses, we've got options to be on both, both your mailing and registered agent and office address to keep you in your personal address off the state system.

And what Matt just said is completely accurate. But I want to say it in a different way and reiterate the importance of this. When you set up an llc, there's two addresses involved. One has to be a street. And in the state that's registered agent. We charge 125 bucks any frickin state to be the registered agent for your llc. Done. If you're paying more than that, call Becky Lloyd at our office. Becky Lloyd say Becky, switch me over. Done. So you can start saving now. Now that's the street address in that state. Most of our clients say, I don't want that to be me. I don't want my street address out there and I don't want my name out there. And for 125 bucks, done. Worth it. The other address gets a little squirrely because that's a mailing address. In some states like California, they're now requiring a street address for the mailing address. Other people say, oh, I don't have to have a street, I'm just going to do a P.O. box. You go down price a P.O. box. They're not cheap.

They are not cheap anymore. No, you want, have you heard what's going on with the postal service? You might not get your mail in that PO Box.

Yeah, and then you've got these kind of UPS type stores, more affordable, more services, but they can be out of the way. Am I gonna really drive there three times a week and whatever. Then you have to decide, well I do want my address out there again. Or this is where our law firm mail forward, which is a virtual mail service. We scan all your mail, send you a ping with an email and you can look at your mail online. Nowhere would no matter where you're at in the world. And our service is 200 bucks for up to three entities. And if you have more enemies than that, we just start doing math. But the beauty is you can have mail forwarding for the mailing address but not for the street address in the state, which is the ra. So as Matt said, there's two addresses. And if you've jacked it up when you set up your llc, that's where the Cleanup comes in. So you say, susan Christie, I need a cleanup. And by the way, I want it more private. I want to change the addresses. I want you to do mail forwarding and scan my mail and just send me an email. I'm.

Blah, blah, blah.

And so this is that cleanup. That's just huge. Oh, and Matt, could the timing be better? I didn't even think about this. Next month's our cleanup special.

It is, right? So if you. If you're listening to this list of stuff, you're like, crap, I missed a bunch of this stuff. I didn't do that. I need to have this added. We can clean it up, and we have a cleanup special. We're gonna save a couple hundred bucks off the regular cleanup prices if you get it done in the month of September. So. And if you're ready now, you just hear this end of August here, you're like, oh, I want to get the cleanup. We can offer it early, but to those in September, you'll be just. You'll go to kkoslawyers Calm. You'll be able to find a special right there on the homepage. Kkoslawyers Calm.

And I mean this, our listeners, again, not an infomercial today. I just remembered that. That. That's the month of September, and Susan was bugging us right via text last week. When are you gonna start telling people about it? We're getting on it, you know, and so that's funny. It just came up now. Okay, can I say one other thing that then you got. I only have. I'm starting to run out of two. But I want to say two or three things. And so. Well, let's tag team the last of this, and we'll wrap this up, people. Multiple LLCs. That's a common conversation. Now, Matt already allude to. Well, I might have five rentals. I'll set up two LLCs. Three rentals in one, two in the other. You want to start putting your eggs in different baskets. But there's another one we didn't really clarify. And I want to do this. I call it the Dentist and the Dental Building. You want maybe I'm going to say it blunt, not maybe. You'll need two entities, one llc, to hold the building and rent back to the other entity that's running the operations. Now, that could start out as an LLC that morphs into an S Corp, but there are two different entities. Brother, sister. Think of it. Contractor, Metal Building. Dentist, Dental Building. Applebee's Restaurant Building. And so no matter what business you have One of your best strategies is renting your own building to yourself. And that's one of the first rental properties we recommend to clients. If you have commercial location, stop the insanity, buy a frickin location and start paying rent to yourself within a separate entity.

Love that. Okay, I want to talk about making sure you're maintaining this entity. You got it set up, you've had it for years, what have you done? Okay, there's a couple things you need to make sure you're doing well. There's really three things I should say you need to make sure you're doing every year. One is the taxes. Obviously that goes without saying. Okay, if you make that s election that Mark talked about and it's kind of about 50,000 in net income after you expense everything, you may want to make the S election to your LLC which makes you taxes, an S corp, you're gonna be doing payroll, you're gonna be doing an s Corp and 1120s tax return. That's a corporate tax return. If you're a partnership, you have a couple partners in this LLC with you, you're gonna do a 1065 partnership tax return. And obviously if you're just you owner, you haven't made an S election or anything. It's going on schedule C of your personal tax return. Now with all of those different tax obligations you have, you have to do bookkeeping. I know people like, ah, this is a part of being a business owner I hate. I don't want to be a bookkeeper. Okay, go hire someone that is because this has to get done. It's important to understand the financials of what you're doing in your business from just a financial accounting and analysis standpoint. If you don't know the numbers in your business, you're going to make bad decisions about what you're doing and how to grow it. But also you need it for your tax reporting obligations. And we want to be expensing everything we can. Clients who have the best bookkeeping that are on it have the most expenses. If you don't, if you're like, well I'll worry about my bookkeeping in April of 2021 to remember what I spent in February of 2020. And you're using personal bank accounts and personal credit cards to pay for stuff, you're gonna forget all this crap. Alright, so get a system, you know, get on board, you're gonna have some bookkeeping. Remember, taxes is one thing to make sure your entities maintained and you're, you know, you're not pissing off the irs. That's one person you don't want to piss off.

So tax returns and maintenance number two, Ongoing bookkeeping number three, I'm going to say even before we get to the big annual discussion, but I'm going to say separate accounting and separate.

Oh, yeah.

And it's not just accounting.

Operating it as a separate company.

Yeah. It's just. It's all the above. Once you set up your llc, it's not you doing business anymore. It's your llc. I want it on checks. I want it on documents. I want it in your email address. I want it on a business card. I want it on your letterhead. I want. I want it freaking out.

Service agreement, your general service agreement, or your contractor. Whatever you use when you're interacting with your customers or whatever you're doing, that's going to be in the name of the company. When you go lease an office or let's say you're a retail location or whatever, who's the tenant on that? Not Mark Kohler. Okay. It's again, Vandele Industries llc.

Yeah, Mark's not the owner of it. And you're going to have a separate checkbook for your llc. Now, do you have to have a credit card in the name of the llc? No. You might say, I'm going to use Capital One for business. I'm going to use Visa for personal. Okay, Just stick with it. It's okay. I don't care that your personal name might be on a separate credit card, but just dedicated to the business. Now, with debit cards, I want to use that business debit card religiously. And if I hit right here. Where's my wallet? Well, I've got to be careful showing this stuff online because people can freeze frame all the way. But I've got my other. My wallet. Go, Corey.

I've got the same thing I've got.

Here it is. So here's my personal debit card. And then here's my business. Well, this is my business Amex.

My.

My other one. My business debit card is out and about right now. With one of my staff buying some

supplies, I feel like I need to show mine, too. Like, I don't want to be left out either, you know, I mean, I've got, you know, personal business. You got a little mix it up. Yeah, they're both great, so it could be confusing, but I know.

Okay, since this has been the Seinfeld show, you don't want a Costanza wallet.

No.

If you remember that episode, Costanza had this.

My wallet.

Look at that. Show it again. That was slim.

Yeah.

Nice.

It's called a silk. It's the silk phone, you know, case. It's very.

Does that have a battery in it, too? An extra charge?

No, no, that would be way too big. I mean, this is.

I have the battery cover on mine. But that. I like that. But the point is, people carry around your personal debit card for when you go to the grocery store and then carry around your business debit card for when you go to office Max. So you're going to try to use your card separately. Oh, my gosh. There's so much to talk about and we're over our time, but everybody. Okay, Matt, Maintenance, bring it up annual.

Okay. This is what you need to do every year. Every state. Well, most states. 99%. Well, should say nine. Most states make you renew your entity each. Each year. So you have an annual renewal. Now, some states have a biannual renewal, but you have to file something with state to keep it active. If you don't, and you don't pay the annual fee and file the annual filing and remember to do it every year, you're gonna eventually go into a defunct status with the state. And eventually the state is going to dissolve your entity. You will no longer have a company. Alright? So you've got to stay on the ball with that. Doing your annual renewal. The second thing that's involved with that is annual minutes. You want to keep a set of minutes for the company that outlines what happened in the year. Do we make changes? What are the big things that happen?

Okay.

And you want to have an annual set of minutes. Now, I know a lot of people like Matt, but I thought LLC don't have to have minutes. I read that online only corporations have to have minutes. Yes. It is not a specific statutory requirement, but what happens in litigation is if something happens in your business, a plaintiff sues your llc, they don't want what's in your llc. They want to get down to the owner. And one of the theories that plaintiffs lawyers use is something called alter ego. It's basically a legal theory that says the LLC was just you. This is Vandele Industries owned by Mark Kohler. But they didn't really. Mark didn't respect this. As Vandele Industries. I want to go to Mark Kohler and get Mark Kohler's assets. Vandalay Industries is worth nothing. Well, if Mark didn't do his minutes, he didn't treat it separate. He was using his personal card for everything on the company and wasn't using his business Card. He doesn't have a good set of books to separate this. They're gonna be able to blow right through Vandenley Industries and get at Mark's assets. So we want a set of minutes. We want to document this and keep it separate.

I love it. A good example of that is. And I've got to tell you why I ran out in a moment. A good example of this is the doctor says you should floss, Matt. Now does the doctor require you to floss? Is it a law that you floss your teeth? Nope. But is it smart that you floss your teeth? Is it going to protect your teeth if something goes really bad with a cavity? Absolutely. And so don't think, well, I don't have to do minutes because it's not required and it's not the law. No, you should do it. And you're going to be happy if you do. And it can be very, very simple and affordable. Which brings up another topic in this whole thing. Board of advisors. I want your LLC to have its own board of directors, which we call in an llc a board of advisors. So you've got the members that own your llc, which could be your S corp or your trust. Then you're gonna.

Owner. That's like shareholder or owner. Okay, that's right.

Members, owner. Then you got your managers, which could be you, your spouse, your best friend, your dad or mom. Then you've got your board of advisors and you're going to have an annual board meeting, which I prefer to do in Cabo, Hawaii. Or maybe it's a winter board of directors meeting in Utah. Skiing. Matt and I have a board of advisors board of directors meeting. We try to do it quarterly. Matt and I have done it mountain biking in New York, fly fishing in eastern Utah, out by the Butch Cassidy and Sundance Kid hideout.

Surfing at San Onofrect many times surfing in Hawaii, Skiing at Tar he.

Skiing. Yep. So choose fun little trips that you're going to have with your, your closest people anyway and have your annual board meeting. We, our little company maintenance plan, 150 bucks a year. We give you a list of questions to cover. So you're going to go do your dinner, you're going to go do your activity and you're going to take a great tax write off for the travel cost to get there and the food. Can't write off the skiing or the fishing anymore, but you can just write off to travel to get there and the food. And that's a great write off. And so I think Corey talked about. So I Had to run out because I was getting a parking ticket. And so I ran over there and I talked her. Are we good? Did she throw down a ticket? Ah, sweet. I talked her out of it. So I was like, come on, I'm just gonna be here for a minute, please. She's like, all right. But this is classic Idaho. What was my. Did you see Corey's lap? It wasn't my car. I had parked my four wheeler on the sidewalk.

Oh, my gosh.

I had this sweet day. Four wheeler. And I was like, it's nice out today. I'm just gonna, you know, I just four wheel over here to the office, and I walk out there. She's like, really? I'm like, the other Main street businesses here, they hate it when I take up a parking stall for a four wheeler. She's like, all right, I can still get by. And she's on her little thing. What do you call those little things, Corey? The little what? Segue. She's on a little segue. All right, you're good.

All right. Well done. I'm surprised you got out.

Thank you. I got out of. During my podcast.

All right, let me finish with this. And thanks, everyone for hanging on. This is a big topic. There's a lot to say on it. And I've sam so many of these topics. Like, we've got separate podcasts on an S corp on a series llc, on asset protection, on doing your company maintenance and keeping your entity up to date. So that's the last thing I was gonna say is if you're like, matt, I don't want to worry about doing my renewal with the state. I don't want to worry about doing my minutes every year. We have a pro. We have a program for that. We have a solution company maintenance program. And I know Mark's like, we don't want this to be an infomercial, but I'm just saying we do this every day. We set up 100 LLCs, 150 entities a month, and we have how many thousands of clients on this company maintenance program? Okay, we're just doing this every day. We're just telling you we have it. People like, well, I don't know where to find something like, well, we have it. Okay, we will do your minutes. We'll do your annual renewal for you. We won't make sure it gets forgotten. And we have a system and procedure and a whole team that handles it for you.

Yeah, really good. And my last comment is this. I was on the phone this morning with an attorney out of California. He's an affiliate partner of ours. He's great. He sends us work, we send him work. Great attorney. And he goes, mark. And I got a little emotional when he said it. He goes, I was listening to. He goes, I think it was a Facebook or YouTube Live, you're on with Matt. And someone asked a question. And he goes, you didn't dance around it. You didn't say, call the office, we'll bill you. He goes, you answered it and freaking. You stuck with it till the whole answer was there. And he goes, no, attorneys do that. Their goal is to just give you enough to get you in and build a heck out of you. And he goes, you guys, people don't know how much you give away. And like a show like this. I don't know of any other podcasts where two attorneys take the time to go through for an hour and a half and break down 32 different issues of an LLC with honesty and integrity and say, if you need it done, here's an affordable price. And he goes, mark, you're awesome. We appreciate you. You're like the spotted white leopard. You and Matt Sorenson doing this because no one else is doing it. And I said to him, I go, eric, I said, we make deposits with people so we can make an ethical withdrawal once in a while. You know, we want to give you guys as much content as we can, but then we ask you in turn. Don't go out and do the DIY and screw it up. Our fees are affordable. If you need it, we're here. That's cool. Go somewhere that's affordable. But just be careful. Trying to knock out a lot of this online because you stayed at a Holiday Inn Express last night. It's. You got it. Be careful.

Yeah. And also be careful for the pushy salesperson in a cube that you met at a Holiday Inn, you know, that's selling you this 10,000 plus package of scrap you don't need, because not only is it scrap you don't need, they don't know what they're doing either, and they're going to overkill it and you're going to hate your life and paying fees to the state and then doing tax returns you didn't need. It's going to be a nightmare.

So.

All right, well, we kind of nicely

notes all over here.

I just want to say I love this topic, that we did it. It's for many of you, for you new business owners looking into it, it's a real legal topic. Hopefully you learned something from two dorky tax lawyers and business lawyers and yeah. Oh, you got an update?

No, I'm not. I'm gonna share one last juicy nugget in my outtake.

So I will yield the balance of the podcast time to the gentleman from

Idaho and Matt Sorenson. He's gonna love this outtake. So I started the show. The first example I gave was a very successful investor and business owner with 70/ LLCs hacking them out on his own a lot of times because he doesn't think he needs any help on it. Called me and said, how do I do this? And they were doing a big deal. And I said, don't do the deal. And he's like, hold up Mark, I'm gonna make money on this. This is a no brainer. I said don't do it. We set up a Roth IRA for his daughter, rolled his wife's Roth IRA in his Roth their health savings account, created an llc, had it turned around within a week and he's going to do this entire deal tax free. And at the end of the call he was like, dude, you saved me hundreds of thousands of dollars, potentially even more with just a simple call from a very educated business owner saying, you know what, I don't know at all. This is Peter Thiel that he did this with PayPal. Mitt Romney's done this with Bain Capital and it goes on and on and on. So it's not just a little LLC for your operation on Main street every time. It might be the advanced strategies of doing business in a tax free format for the long haul. So thanks for listening and expand your horizon, Matt.

I do love that. Yeah, thanks everybody and get on over to mainstreet business.com you can find prior shows we got our newsletter. Sign up there. We do a weekly newsletter. It's got a lot of great articles and information, updates on what's going on. Business owner workshop that's going to be rolling out over the fall, which is an awesome. For any business owner or person or aspiring business owners, it is the best place to go to learn tax, legal and business building strategies. So thanks for being with us. We'll see you back next week.