When Does an S Corporation Make Financial Sense? | Sole Proprietorship vs. S Corporation

Рет қаралды 20,264

Күн бұрын

When does it make financial sense to have your LLC or Corporation make the S Corp election? Specifically, I discuss:
1. What taxes does a business owner have to pay?
2. How does an S Corporation save money in self-employment taxes?
3. What are the costs associated with having an S Corporation?
4. What is the amount of profit you should make before making the S Corp election?
Take what you learn from this video and ask your legal or tax professional all of your specific questions. If you want to contact me, my information is below.
If you learned something from this video, please like and subscribe and follow me on my various social media handles below. If you would like to contact me with a specific question, please visit my website or leave me a comment.
Website: www.navimarajcpa.com
Email: navi@navimarajcpa.com
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This video was created for informational purposes and it is not to be construed as legal and tax advice specific to your unique situation.
© Navi Maraj CPA PLLC. All rights reserved.
#LLC #SCorp #Taxes

Пікірлер: 66

@randomiscam8453 Жыл бұрын

Well explained! Another informative video. Thanks Navi!

@alinem.4537 Жыл бұрын

Very helpful!!! Answered all my questions. Thank you.

@jasonsignor7237 2 жыл бұрын

Excellent video! Thank you!

@paktra6629 3 жыл бұрын

This is very helpful. Thank you Navi.

@NaviMarajCPA 3 жыл бұрын

Glad it was helpful! You're welcome.

@kaizen5023 Жыл бұрын

Super helpful, I've watched a bunch of your videos and this one was the most simple and clear to me on S Corp.

@NaviMarajCPA Жыл бұрын

Thanks so much for the feedback. Glad it was helpful for you.

@abduldelgado6272 Жыл бұрын

Excellent video, thanks, Navi.

@NaviMarajCPA Жыл бұрын

You’re welcome! Thanks for the feedback!

@ryanhodge8694 3 жыл бұрын

Very nice explanation. Great work! So many others just preach the benefits but being a single member business this was a great explanation of the time to consider changing.

@NaviMarajCPA 3 жыл бұрын

Thanks for the feedback Ryan. Glad you found it helpful - I agree with your statement.

@imanhosseini6908 Жыл бұрын

New subscriber after two videos. Clear and knowledgeable presentation. Great content!

@NaviMarajCPA Жыл бұрын

Thanks, Iman. Appreciate it!

@rsingh6590 2 жыл бұрын

The clarity of the information is insane..... Good job paaji

@NaviMarajCPA 2 жыл бұрын

Glad you found it helpful!

@jessejamesjohnston 3 жыл бұрын

Thanks Navi ✌

@NaviMarajCPA 3 жыл бұрын

You’re welcome Jesse!

@jasonmunckton2509 2 жыл бұрын

Inasmuch as every business should do proper bookkeeping and accounting, some smaller businesses don't. As an S Corp there are more stringent requirements for operating as an S Corp so you may have to hire a bookkeeper as well, which increases cost, yet still may make it worth electing as an S Corp.

@RoxanaLuna-bm4hh 25 күн бұрын

thank you!!

@GriffinStructuresInc 3 жыл бұрын

Thanks for being such a great resource Navi! Very helpful! Do you have any videos or feedback for purchasing a car using an S Corp?

@muhammadqqureshi6449 2 жыл бұрын

Great video thanks

@NaviMarajCPA 2 жыл бұрын

You’re welcome!

@alexray619 2 жыл бұрын

Hi Navi! Very great video. You hit all the touch points of understanding S Corp taxes and fees. Just one question. When the LLC members or member takes the distribution from your example. How is that taxed in their personal taxes on their yearly tax? I understand the distribution is reported under a K1. Thanks for the feedback and answer.

@NaviMarajCPA 2 жыл бұрын

The distributions are not subject to FICA (social security and Medicare taxes) but are subject to federal and state income taxes.

@ReadySetGoPictures Жыл бұрын

Just a reminder. 3:50. SE Tax is 15.3%. Federal income tax can be 40%. This means 55.3% of your income is going to tax. Over half of your work is going to someone else.

@user-mf4gz3sp1q 8 ай бұрын

...marginal and brackets percentages are not the same...

@PlatinumPace Жыл бұрын

I wish you would have explained the income tax with a question mark because that will impact your example how much total tax will be paid

@pedrogalina660 3 жыл бұрын

Okay, but what about if your Real Estate profit puts you in a 30%+ income bracket? Wouldn’t it make sense to set up an S-Corp to channel some of that income into a lower tax bracket? Or should that never been the case in real estate, as the potential deductions like depreciation should always bring you to a low tax bracket? Maybe it’d be best to set up an LLC with partners? Say a wife and kids? Your videos are awesome! Thank for pushing out this content!

@NaviMarajCPA 3 жыл бұрын

You'll pay federal and state income taxes regardless if you are taxed as an S Corporation or not. The S Corporation is all about saving money in self-employment taxes (Social Security & Medicare). Depreciation is a concept that usually applies to buy and hold rental real estate earning passive income. Passive income is usually never run through an S Corp. Watch this video to understand the difference - I think it may help you: kzfaq.info/get/bejne/oc1ip5WKkt7InZc.html

@kacolorado Жыл бұрын

Remember, however, distributions cannot be used to fund qualified retirement accounts. This is one tax strategy. But don’t forget your IRA or ESP, that you establish as the employer, can also reduce your tax bill. You get the added benefit of saving for retirement in tax-free or tax-deferred vehicle - most people retire underfunded.

@michaelsimmons4883 3 жыл бұрын

Navi, Great video! Can you do one on 401K rollover to a Small Business - ROBS program - and the C-corp that's required? Thanks

@NaviMarajCPA 3 жыл бұрын

Hey Michael! Thanks for the feedback and for watching. The topic you noted is not something I specialize in so I may not get to it. If you have any other suggestions, please feel free to let me know. Thanks again for watching!

@AndrewJones-cf5xy 2 жыл бұрын

How do I decide what to take as 'salary' and what to take as distributions?

@kdfooaijfea3asdf 2 жыл бұрын

If you use S-Corp and pay yourself as an employee (w-2), wouldn't the LLC have to withhold half of the 15.3% SE tax (7.65%)? In the end, there'll still be savings but maybe a bit less?

@albertosony Жыл бұрын

Is this taking into consideration the QBI deduction?

@alessandrocosta7967 2 жыл бұрын

Hi Navi, if my business will record a loss in its first year, does it even matter if I am an LLC (partnership) or a S Corp?

@bellspini1 Жыл бұрын

Can payroll include 1099 payouts, and if so how does that impact the overall tax burden?

@_CaliGirl Жыл бұрын

Hi Navi.... so, how much income should you pay yourself ... it seems many people stick to 2k per month or 3000. Does paying a higher salary help or a lower one? And this would be off of 200...300k+

@pratimachandler9070 Жыл бұрын

A dental CPA's fee was quoted at 750 to 950 a month. Is that reasonable?

@bluedragonweb9127 3 жыл бұрын

I assume reducing your "reasonable salary" and taking a larger distribution to keep the total of both salaries at/below 142.8k will at some point cause a red flag?

@NaviMarajCPA 3 жыл бұрын

I wouldn’t assume that Brian....just because a business makes $500k a year in profit doesn’t mean the owner should have a very large salary. There are more factors that go into determining a reasonable salary. For example, compare someone who leverages technology to do a lot of the “work” for them to make a profit vs. someone who works with their hands and is spending a lot of time doing the activities that generate a profit for the business. Their salaries could (and probably should) be different.

@aloksingh8950 Жыл бұрын

Can I register a company as a single member LLC (taxed as Sole Prop.) and still get W9 form?

@gabe8496 4 ай бұрын

In this example you speak of paying yourself a salary based on what your profit is. But then you mention payroll. How is this happening, since you won't know you actual profit until after the end of year. How would you have paid your self based on that? Is your pay being backtracked?

@kvchiefs19 6 ай бұрын

I currently set up scorp and pay myself a salary but the payroll taxes for employee/me and employer/me are so high i dont understand how this saves money. Last yr i paid $9k in fed and state taxes. This yr around the same gross income but ive paid $16k in payroll taxes with a reasonable salary. That $16k is money gone. Im paying $7k more already in payroll taxes before i even pay fed taxes. Can someone please explain this? Thx

@RonDonProductions 3 жыл бұрын

Thank you for this information! One question I have is what happens to the $20k that isn't subject to self employment tax? Does it just suppose to go back into the business bank accounts?

@NaviMarajCPA 3 жыл бұрын

What you do with that money is up to....meaning you can leave it in the business bank account (and not take a distribution) or transfer it to your personal account (take the distribution). Regardless if you do or do not take the distribution, you will still pay income (federal and state) on it. Hope this helps!

@RonDonProductions 3 жыл бұрын

@@NaviMarajCPA oh gotcha, that makes sense. Thanks again!

@skwerl81 2 жыл бұрын

@@NaviMarajCPA I've been looking everywhere for this info and couldn't seem to find it until I watched this, thank you!! I had the same Q

@guillermorodriguez9176 Жыл бұрын

@@NaviMarajCPA that makes huge difference! you don't end saving $1,250 like you mentioned on your example above... also you save the difference of the 20k distribution after federal and state taxes, am I wrong.? great content by the way... thanks for sharing your knowledge!

@yosefyaakov6502 2 жыл бұрын

If I want to buy a business that makes 300k cashflow, which business type should I make

@DawnCapehart 3 жыл бұрын

Hi Navi, If you are registered as a PLLC and realize at the end of the year you have made the $40k mark or over and want to file as an S-Corp but did not have a payroll company keeping track or set income you were paying yourself. Would it still be possible to file as an S-Corp?

@yonijacobs8932 3 жыл бұрын

Feel free to read this article. Seems like this is the only plausible option for a late s corp election along w no salary being paid during 2020. www.google.com/amp/s/wcginc.com/kb/electing-s-corp-filing-status-retroactive-for-2020/amp/

@NaviMarajCPA 3 жыл бұрын

Hi @Dawn Capehart. Thanks for watching! I would agree with what @Yoni Jacobs posted below. You probably won't find a lot of accountants that want to do what is written in that article but some will.

@NaviMarajCPA 3 жыл бұрын

@Yoni Jacobs, that is correct. Only option that I am currently aware of...not perfect, but really the only choice at this point.

@loganuubex389 Жыл бұрын

what's a good strategy if you're making more than $300k?

@EmersonDickie 2 жыл бұрын

How can I get in touch with you ?

@ThankYou-zt3tr 2 жыл бұрын

Do you provide these services?

@gouthamp-mq7hr Жыл бұрын

Sir, Do we need to file taxes on distribution or not required?

@NaviMarajCPA Жыл бұрын

You pay income taxes whether you take a distribution or you leave the profit in your business.

@janetf9888 Жыл бұрын

Hi Ravi… are you in NY state

@NaviMarajCPA Жыл бұрын

My name is Navi and am in FL. 🤣

@vasilestana9754 2 жыл бұрын

I heard that on S corp one can't benefit of those great deductions (office space rent in your home, milage on your car, cell phone bill, internet bill, uniforms, shoes, PPE, tools, internet bill). I don't think that a S corp is worth it if one makes less than 100k. What do you guys/gals think? Thank you.

@kdfooaijfea3asdf 2 жыл бұрын

well those are still considered business expenses (that $20k in this example).