Main Street Business

#526 So You Just Formed An LLC... Now What?

• Mark J Kohler and Mat Sorensen

Share episode

Join Mark J. Kohler and Mat Sorensen in this episode of the Main Street Business Podcast for a comprehensive guide on setting up and running LLCs and S Corporations. From crucial legal requirements to strategic financial practices, get equipped with knowledge on new BOI reporting rules and how these could impact your business in 2024.

Here are some of the highlights:

  • Mark and Mat stress the importance of properly setting up and maintaining LLCs and S Corps
  • Mark and Mat advise opening separate bank accounts for entities.
  • Use entity names on contracts, agreements, and property titles.
  • How BOI applies to most small businesses, exemptions for large companies.
  • Mark and Mat debate the crucial effectiveness of BOI reporting.
  • The severity of penalties for non-compliance.
  • The significance of maintaining accurate bookkeeping.
Speaker 1:

Welcome to the Main Street Business Podcast with your distinguished hosts, mark J Kohler and Matt Sorenson. Both are best-selling authors and have over 25 years of industry experience, with 10,000 client consultations, making them the leading tax and legal experts in the nation. Together, they'll unpack the most complex tax, legal and financial strategies crucial for saving more, stressing less and building generational wealth. Today they're your personal advisors, ready to break it down for you and make the tax and legal game easier than ever.

Speaker 2:

Here is Mark and Matt. If your books are kind of a mess, it's going to cost you more. I promise you, whatever you spend in good bookkeeping you'll get back double in tax savings.

Speaker 3:

Someone's going to say, hey, you're LLC, the tenant slipped and fell and like I want to sue you. Like, well, you can't sue me, you got to sue my LLC. They're like did you really treat it like an LLC? Did you have annual minutes? Did you actually keep your entity renewed?

Speaker 2:

Someone trying to sell you an LLC that it was simple and easy. Didn't tell you this. Irs is going to ask for it in an audit.

Speaker 3:

It's on their list to get these documents. You're like I don't have it. Did you really have a?

Speaker 2:

company. I'm sorry for the reality check, but there's thousands of people listening right now that have a rental property in an LLC. Can I?

Speaker 3:

just say I actually disagree with you.

Speaker 2:

Welcome everybody to another episode of the Main Street Business Podcast with yours truly, mark Kohler, and the amazing Matt Sorenson, my incredible partner.

Speaker 3:

Glad to be here with you. I'm excited. I'm excited for today and the topic, because people need to hear this. Yeah, yeah, how do you?

Speaker 2:

We need to help you. Okay, yes, and if you haven't read, if you're multitasking and you just hit play, let's tell you that topic, and it is how to maintain your LLC or S corp on day two.

Speaker 3:

Yeah, everybody's all excited about setting it up. And now I got it and you're not done, and we want to make sure that you're maintaining this entity. You know what you've got to get done. There's resources, of course you can get help, but we want to go through the list. So you know cause you got to be informed.

Speaker 2:

You're captain of the ship and I think just an overall point that I want to make right out of the gate is that it's just not one sheet of paper. I set up my LLC, I'm done. I know so many business owners would love that's how it works. If I could just click my heels together and wish it so. It's not that way. If you have an LLC, there's a lot of or S-corp, which we're going to talk about both. There's a lot of benefits and a lot of reasons to do it, but it's it's just not a one and done.

Speaker 3:

Right, yeah, I mean you have to use it too. I mean this kind of goes without saying. So we want to just make sure for those of you that are like guys, I'm a business owner and you're typically a side hustle, a main hustle small business, big business. I think a lot of people just kind of get it set up and they maybe open up a bank account and they're starting to run their income through it, and but then they forget about all these other things and you're busy. So we want to make sure you're remembering the key things to get done every year.

Speaker 2:

We got to find a good analogy here. Like everybody would never not maintain like you buy a car, yeah, you got to put gas in it.

Speaker 2:

You got to maintain it or it's just going to sit there. You maybe get the first, I don't know, but hopefully many of you are getting that point. So here's what we want to do today too. So let's talk about, whether it's an LLC or an S-corp, what you've got to do to maintain it right out of the gate, no matter what type of entity, you set up some good practical steps that are going to give you the benefits you think you got and continue to receive them and use them. Then, for US corporation owners, we're going to give you an added layer of things that you need to do, and the benefits too. Not everybody needs to be in S-Corp, but once you make that pull that trigger, there's some extra things you need to do to get those benefits Right right.

Speaker 3:

Extra work but extra benefits. But again, not everyone needs it, Not right for every situation. So now we talk about all the time whether to use an LLC or an S-Corp. We've got other videos on that. Llcs are great for holding assets, rental properties, partnerships. We love S-Corps for operational businesses. So not the point of today. But let's break down the things you have to do, no matter what. You've got an LLC or corporation, no matter the state.

Speaker 2:

Yep, okay. So let's start right from the beginning. When you set up a new entity and I know some of you are told to do it by your family member you're at a conference. You're just like, oh, that's what I'm supposed to do. The first mistake that we see is that so many owners think it's just a one sheet of paper and I can just go online and do it for 50 bucks. And these are sometimes some very savvy business owners. They don't like calling their lawyer, they think it's worthless, it's going to cost them more, so they just kind of do the DIY thing.

Speaker 2:

And the first step in maintaining your entity is setting it up properly. I've got to just say that, because it's so many people. It's one sheet of paper. I paid the state, I'm good. No, there's about seven or eight other pieces, whether it's an operating agreement or it's bylaws. If you're an Inc, do I have minutes? Do I? Did I file it properly with the state? Do I have a corporate book and stocks Cause? See, you don't have the asset protection unless you have the structure set up properly from the beginning.

Speaker 3:

Anyway, yeah, yeah, so yeah, and that's important because one of the things you're going to need to do on an annual basis is minutes. Do you have to have the initial minutes when you set it up, and so and these are the things that are important if you do get into a lawsuit, if you do need to go get a line of credit, if you do get audited, I mean these are the things that they ask for, right? A plaintiff's lawyer is going to ask for this stuff because they want to pierce this LLC or corporate bill. If you didn't do these things, the IRS is going to ask for it in an audit.

Speaker 2:

It's on their list to get these documents. You're like I don't have it. Did you really have a company? Yeah, see, if you want to write off home office, a mileage reimbursement, reimbursing yourself for travel expenses, any sort of what's called an accountable plan, some healthcare expenses, maybe all of those provisions need to be in your minutes. Well, I don't have to do that with an LLC. No, you do.

Speaker 2:

Someone trying to sell you an LLC that it was simple and easy didn't tell you this. Did they sign a piece of paper and tell you they're going to stand behind their crappy advice? Are they a lawyer, an accountant of some sort? Are they an advisor with licensure and malpractice insurance? Probably not.

Speaker 2:

Well, I went to the seminar and this guy makes millions and he just says do it this way. That doesn't mean it's the way you should do it. And a lot of times behind the scenes you know how many influencers we meet with on a regular basis that everybody thinks they're craps altogether. It's not. And they're coming to us behind the scenes and help me get my stuff together. So just be careful who you're getting that advice from. I'm sorry for the reality check, but point number one let's summarize. Set it up properly get your minutes done. Have the provisions that the IRS requires that if you're in a lawsuit, a lawyer, a law you're going to lawyer's going to want to see in there it's not that hard, it's and it's not that expensive, we can do it right.

Speaker 3:

Yeah, we call it a cleanup. I mean our law firm does those every 30 minutes. We're cleaning up someone's head. We have a service for that. So if you haven't done that, that's right.

Speaker 2:

Call our law firm. There are links down below. If you go somewhere and say, hey, I need a cleanup, you don't even have to talk to one of our lawyers. Our paralegals know what to do. They're going to get you all the pieces and parts in it. They sometimes they see it and go. This is not repairable.

Speaker 3:

You to talk to a lawyer too sometimes.

Speaker 2:

What's the turd comment? Yeah, I mean, sometimes you just have to dissolve it and start over because we cannot polish a turd. That's Matt Sorensen's quote that will go down in infamy. Yeah, I stole it from someone, but yes, oh, you did.

Speaker 3:

I thought that was always yours Somewhere. I mean, I've used it so much I've kind of I've made up my own, yeah.

Speaker 2:

We made it your own, made up my own, you've used it more than anyone else, so, but yeah, so if your entity's a mess, that's another point we want to make here. We don't want to make you think the sky's falling. You've got to start over. We're trying to sell you something new. Maybe what you've had for the last five years just needs cleaning up. And, by the way, can I got to do minutes every year. I don't have to. You want to, you want to. This is a great time to get your board put together with your family, your spouse, your partner, your kids, your mom and dad, your best friend. This is the golf trip you want to write off, the annual vacation you want to write off because you're going to have a board meeting. You're going to talk about your business and finances and wealth. You're going to start collaborating and doing it what wealthy people do, and that those minutes are that write-off. So maybe we should. Just that's point number two. Yeah, get it set up right, you've got to do your annual minutes.

Speaker 3:

You want to expound on that a little, yeah, so let's just tell you that number one item you need to do is your annual set of minutes, whether you're an LLC or corporation. And we've already been beating up the LLC, because a lot of people do say you don't need to do minutes for an LLC, because in the corporation statutes in all 50 states there's a requirement that you're doing annual minutes. You don't need to show them to anybody or give them to anybody, or you don't file them anywhere, but it's in the statute, whereas LLCs, it's not in the statute, but you still need to do it for the tax purposes Mark talked about and the tax benefits you can get from it. Also, for the acts of protection that you're going to want to have. Because here's what happens when you get sued Someone's going to say, hey, you're LLC, the tenant slipped and fell, and they're like I want to sue you.

Speaker 3:

You're like well, you can't sue me, you got to sue my LLC. They're like did you really treat it like an LLC? Did you have annual minutes? Did you actually keep your entity renewed? We'll talk about that Like did you treat it like a real entity, separate from you personally and the minutes are one of the things that you go to show. I treated this like a real company, so they can't get through the LLC and do what's called piercing the corporate veil. So there's many benefits to doing it, but that should be number one on your list. Get your minutes done and here's what should be in the minutes. If you don't mind me saying Just a couple of things, what were the main things that happened that year?

Speaker 3:

Did you hire people? Did you acquire more assets? Did you sell a property this is an LLC for rentals Did you get more debt on the company? Like, just think of the main key things that happened in business. It's kind of like memorializing the year of what happened in the business. Don't overthink it. You know some clients we get their minutes and it's like 10 pages. I mean good Lord, like you don't need to do that, but let's just get the main things, the big changes that might've happened in the business during the year or the major accomplishments you have.

Speaker 2:

And it doesn't have to be expensive and I've been dying to say this too we we charge a $200 at our office to take care of it for you, start to finish, and we're going to come to the BOI report here in a moment, which we include for that same price. So for 200 bucks we send you a questionnaire just to get your juices flowing. Go on your vacation, fill it out, send it back in and it's done. So it can be affordable, simple. We'll help you do it. Our Main Street Business Services it's a sister company to law firm can expedite that for you. So that'll be down in the description. If you want to get signed up for the MainStreetBusinesscom MainStreetBusinesscom Now let's back up to day two so we get it set up right. We know we're going to be doing our annual minutes. Some of you need to do a cleanup, so we're off on the right path.

Speaker 2:

Some practical points when you have a separate entity, you have to respect it. They call it respecting the veil in the law, and so that veil of protection between you and a potential creditor means you're going to open a separate bank account in the name of that entity. You're going to use that entity's name on contracts and agreements. If you're owning real estate with that LLC, you want the LLC on title and do not worry about the due on sale clause. Banks do not care. Deed that property over the LLC yesterday. Get it done.

Speaker 2:

Banks again are not going to call the due on sale clause. We haven't seen it in 25 years. Now if you go into the bank and start asking permission, they're going to freak out and not even know what to say. So just take care of your LLC. Make sure it's on agreements on titles. You have a bank account. You're using it. If you want to get a separate credit card in the name of the LLC, that's great, but you don't have to. You can just dedicate a credit card to the LLC or ink, but just use it. Yeah, I don't know.

Speaker 3:

That's my point. Yeah, I mean, well said, I mean you just gotta. If you want the benefit of it, you have to be using it and you don't want any confusion of was I doing business with Matt Sorenson or was I doing business with Sorenson Enterprises LLC? You know, like, who was I doing business with? And if it's not clear, you're going to lose, they're going to sue you too. They might sue you and your LLC and be like I thought I was doing business with Matt Sorensen, you know, and so I want to get anything that Matt Sorensen has. I want to be like no, no, no, no. It's pretty clear. You're in business with Sorenson Enterprises LLC. All right, that was on the contract, that was on the invoice, that was on the marketing I sent you, that was on the deed of the property that you leased for me. You want that super crystal clear.

Speaker 2:

Let me give you one example. We see all the time. I know there's thousands of people listening right now that have a rental property and an LLC. Now let's just do a little quick intervention here. Is the LLC set up in the right state? Because it needs to be either set up or registered in the state where your rental is. Is your rental property on title? Your LLC on title for ownership, not you. Have you deeded the LLC to be the actual owner of the property on title? Is the lease agreement with your tenant in the name of the LLC or your name? Is the tenant paying the rent to the property management company you might have involved, and hence to you?

Speaker 2:

Maybe there's a middleman, but is the money for rent going to your LLC bank account, not your personal bank account? Are the utilities set up in the name of the LLC? What else would you ask in that questionnaire? So, is it? Oh, is your LLC in good standing with the state? Have you ever got Googled Tennessee Secretary of State and go there and click on your entity? Oh, it hasn't been renewed. I didn't pay my fee a year ago. It's dissolved. I don't even have an LLC. Have you done your minutes lately? So maybe there's just seven or eight questions. All of a sudden you're like, if you miss even a third of those and there's a tenant that gets pissed or wants to file a lawsuit, you don't have an LLC, you lose. You literally lose. And if you're trying to write off expenses related to that LLC in a creative way and the IRS audits you, that LLC it's not going to help you either.

Speaker 3:

Yeah, it's definitely in question. So let me tag onto what you just said there, though, because you talked about the renewal, and that's a very critical point here. In most states and there's some variations of this, but there are 50 states here, so we're generalizing this for purpose of the podcast In most states, you have to file a renewal with the state every year. Now, there's a couple of different states that do this differently. I just want to give a couple of different things to think about. Examples. Yeah, let's give a couple of examples. It's like you might have a state. That's very common. It's like you file with the secretary of state a form and you pay us 50 bucks. You're good, I don't care if it's an LLC or corporation. Yeah, like a.

Speaker 2:

Utah, michigan, yeah, and Illinois is like 15 or 25, 50 bucks a year. Illinois is a little more. Illinois is a little more. Yeah, illinois is more, that's true. I brought up a bad one there. 30 states are like that.

Speaker 3:

Exactly and so and that's nice. But you still have to do it because if you don't, now your entity gets dissolved. Like we didn't hear from you, you didn't pay your 50 bucks, your 100 bucks, your 20 bucks, you know, and you know, if you don't do that for a couple of years, all of a sudden you don't have an entity, you go into default and then you go to administratively dissolved, which means the company is no longer a company and this has nothing to do with the IRS or paying the state taxes, the state tax return that you may need to file.

Speaker 2:

This is the secretary of state. Yeah, now there's other states where they want a little more.

Speaker 3:

Yeah, they want a little bit more or don't care at all. Like Arizona, that's true, there's a nice. There's some states like, hey, we don't care. Like LLCs in Arizona, for example, you don't have to file anything Once you set it up. You pay your initial fees, you're good.

Speaker 2:

Which is the weirdest thing?

Speaker 3:

Yeah, Now corporations in Arizona you have to file an annual filing, so there's a little nuance there. But then you have other states like I think, like Colorado. They don't want anything year to year either, and so they're just like we don't care. You paid us once, you're good until you tell us otherwise.

Speaker 2:

Now then you'd look at other states like Tennessee. They have a FONTS exemption, a whole separate form that if you don't file that they're going to assess some state tax to your LLC, even if it's just a little rental property. You've got Texas with a franchise. You've got Washington State, hawaii, california has the minimum franchise tax form 568. So you've got these different States where they are a little more pain in the butt, but you found a good deal there. You're doing business there, that's okay.

Speaker 3:

Just play to play, yeah and so, but a lot of times it's just the mechanics of getting it done. And Texas is a classic one where it's like their damn franchise form. You have to file for your LLCs and it, and if you're a small business owner or something you doesn't, it doesn't cost you any more tax because they have exemptions for small businesses.

Speaker 2:

You know, if there's like revenue below like a million and two, but if you don't file the form, but if you don't file, it.

Speaker 3:

They like lock down your entity. You're like this isn't an entity anymore and so.

Speaker 2:

But then there's california, bucks five there's californ.

Speaker 3:

The other hand, that's like we don't care if you lost money or you made a dollar. You're at least paying us $800. We want something out of you.

Speaker 2:

So the moral of the story? Here we'll give you a lifeline. This is where Main Street this is not infomercial, but we just want you to know if you don't have a resource to help you Main Street Business Services. This is what we've been doing now for 15 years. Early on in our practice, with our law firm setting up entities all over the country, clients were all of a sudden having problems with this and we I think it was in the first two years, matt and I were partners. We said we got to have a paralegal just dedicated to doing this. Now we have a 20 to 25 person team that all they do is maintain entities for clients around the country because it's so important and so needed. And so don't worry about all these little nuances we got you. If you sign up for our program, we're going to let you know. This is what you need to do every year. This is what you miss.

Speaker 3:

This is what you you know, dah, dah, dah, yeah. And there's even some states that are like and every other year I mean it's just you know so, but that's the thing you get to know, your state oh yeah, and there's another good one too.

Speaker 2:

It's like you set up in January or February and then you think, okay, my renewal is every January, february. Nope, in the state of Rhode Island. Once you set up in January, your renewal is every April.

Speaker 3:

Yeah, Like North Carolina is like that. I know it's like we don't care. You set up in March. Oh, you got to renew because it's April. Yeah.

Speaker 2:

And so there's a weird. You know, sometimes it's going to be November, who knows? So every state has their weirdness. My calendar I don't have one here at my desk, but my Mark J Kohler annual planner calendar you can get it at markjkohlercom. We're in our fifth year of producing that. In the calendar we list all in and throughout the year, all the renewal dates for entities in all 50 states. I'll tell you it's quite the big to-do, because I call the paralegals in November when we're ready to print for next year.

Speaker 2:

They're like all right, let's see. When is North Carolina versus North Dakota and it's Washington, alaska and LLC versus an SDL. So it's all in the calendar. If you'd like to get a copy of that, I think it's like $25. It's a great little resource. It's got tax resources in there too.

Speaker 3:

Okay, so we got the renewal done. So we've done our minutes, we've got the renewal done, and maybe there was an additional form with the state, depending on your state where the entity is set up. Now, also, I will say this too If you have an entity that's registered in multiple states, you got to renew the foreign registrations too. Let me just add that in next, okay, what's the next thing that's big on the list?

Speaker 2:

I think I'm going to say follow your tax returns. That's the tax guy here. So we just talked about doing setting up bank accounts. So I'm going to just presume you're doing bookkeeping and you're doing a tax return. That's going to close out the process. On that end, what else did you?

Speaker 3:

have. I mean, I got a massive one for 2024.

Speaker 2:

Oh my gosh, I knew it, your BOI, your business owner information report.

Speaker 3:

You have got to get done and I know there's some litigation out there and some people are like, ah, this is BS, I don't have to file this thing, the government doesn't need this. I know I agree with you, but the law says you have to file this, yeah, and this was Republicans and Democrats that came together.

Speaker 2:

Okay, let's start over. For some of you that are still just getting up to speed on this or have ignored it, let's just summarize BOI stands for Business Ownership Information Reporting. Boi it's to the federal agency called FinCEN, which is the sister to the IRS, and their job is to make sure that there's no financial crimes out there being committed under these names of entities that just come and go Like everybody's just setting up entities and ripping people off. And so the Republicans and Democrats I'm summarizing generally. I know you can add some bells and whistles, but for the average layperson, just know there's bad people out there using entities to hide behind and then disappearing on day two. They've been doing that for years.

Speaker 2:

So Republicans and Democrats about three years ago said enough. Whether it's human trafficking, drug dealing, money laundering, we need to know who is owning these freaking entities and hold them accountable to report that ownership and control, and we're going to try to clean up this mess. So they said, starting three years from now in 2024, everybody's required to do this or the penalties are going to be significant Thousands of dollars per day, go to jail. You need to tell us who owns your freaking entity and controls it. We're not going to make it hard on you to do it, but you got to do it and that was the law. Everybody said, oh, that's nice, okay, and then forgot about it. Well, it's 2024 now and it's time by December 31st to report, or you're going to have some issues. So how would you, how'd you like that summary?

Speaker 3:

I was good summary. I liked that. It was good summary and you know what? It's not that complicated, um, but it is something again on this list of these little things you got to do. This is kind of like the change in the oil in the car example that Mark gave earlier. Like you got to do it every once in a while. Now the BOI is a one-time filing, so we've got to do it at least once Now. If information on that report changes, you may have to amend the BOI filing, but otherwise this is a one-time report.

Speaker 3:

This isn't an annual thing like your state renewal. When we're setting up new entities right now, we automatically do the BOI right and we set up the entity for a new client right now. But if you had an entity before 2024, like you had your entity set up in 2017, you've never done this. The law never existed and it went into effect this year. You couldn't even file it until this year, but everyone's got to go comply with this. So make sure you understand what that is Now. Mainstreet Business Services we talked about that. Mainstreetbusinesscom we conclude that in that company compliance service. Mark talked about where we do your minutes. We do your state renewal and we do your BOI filing and any amendment if you have any changes to the company, yeah, so good. And the BOI filing, let me just say it's just kind of like informational. It's not a tax return. There's no fee to the government for it. It's kind of like who owns 25% or more, who controls it?

Speaker 2:

And you have to give a government issued ID of those people and so and I want to just try to give you a good reason or feeling when you do this, don't go in bitching and moaning and complaining. The government's trying to intrude in my life again. What they're trying to do and I believe in it is they're saying hey, everybody, let's all get together and report which entities we're using, because there's some bad people out there that are hiding behind entities that we need to find out who they are. So if everybody comes together 90% of us and reports honestly, this is what we're doing and, by the way, it is private under the Privacy Information Act. Only the equivalent to the IRS government has this information. It's not public record, it's not going on Google, it's just with the feds.

Speaker 2:

Our goal here is to try to flush out all the bad actors that are using entities in this country and they're not wanting to tell us who owns them. So the feds can then focus on them and go shut them down, find them, chase them down, whatever the case is. So this is a there's a lot of bad actors out there. I mean Tony Robbins, by the way. Tony Robbins just came out with such a great movie on human trafficking and what he's trying to do. There's just some.

Speaker 3:

Can I just say I actually disagree with you.

Speaker 2:

Okay, all right, that's okay. We can take two different sides.

Speaker 3:

I totally disagree. I think the law is totally stupid and insane and the people that wrote it have no freaking clue. I'll be honest, but you got to comply.

Speaker 2:

You don't have a choice. Back that up why you don't think it helps at all.

Speaker 3:

I don't think it helps at all, why? Here's the thing If you, you don't have to file If you're a big company with more than 5 million revenue.

Speaker 2:

Yeah, we already know that, Let me get there, let me get there.

Speaker 3:

Okay, and then if you were a real company, you were filing your information on a tax return. Whether it's even a sole proprietorship or it's an S corporation or partnership, you're actually filing your information on a tax return to the federal government, claiming the income right. No, LLCs don't have to do that.

Speaker 2:

Well, that income's going on somebody's sole prop on their personal return somewhere, yeah, but the llc may have no income and the tax return doesn't say who owns it.

Speaker 3:

I know, but here's the problem, the people who are the money launderers. The criminals are the people already not giving information to the irs. But what the heck's happening?

Speaker 2:

these are you just said it.

Speaker 3:

They're not giving it to the irs, so the irs doesn't have it, and they're the same ones that aren't going to voluntarily file this. That's right.

Speaker 2:

So now we have an entity with no trace at the IRS and no trace at FinCEN, let's go after it. Let's figure out, let's shut that down, let's go after it. What we're trying to do is get all the people that are doing it right so we can go after the people that are doing it wrong. I agree with you. They're not reporting to the IRS, they're not reporting to FinCEN, so is suspect that entity is suspect, so we're going to go after that entity.

Speaker 3:

So it's a reverse methodology that could happen. The federal government will not do that.

Speaker 2:

Well, the federal government is crap.

Speaker 3:

They're going to send letters out, they're going to find people and let's see Then I see in this law they actually have to.

Speaker 3:

They're required to report back to Congress the value and benefit of this, which will be interesting to see how this goes over time, because I think this has been a Kind of a pain in the butt for small business owners. Big businesses don't have to comply because of the big company exemption $5 million or more of revenue, a certain amount of employees. You don't even have to file anything on this. It's just kind of a pain in the butt for small business owners. And I don't think the juice is worth the squeeze.

Speaker 2:

Okay, well, I could get on board with your concept that if you would, or your principle that in concept it works.

Speaker 3:

But in theory communism works.

Speaker 2:

In theory well, I forgot what that's from yeah, in concept this works, but is the federal government going to be able to execute it and really accomplish what they want? I get that. That's very precarious.

Speaker 3:

That's usually a winning argument. Yeah, it's usually a winning argument.

Speaker 2:

So I don't know Anything that the government can do to try to keep fentanyl out of this country and bad actors and whatever. And people are hiding behind these LLCs and I don't know.

Speaker 3:

I get it, I get it.

Speaker 2:

Hopefully it works. What a great debate. Yeah, it's good stuff.

Speaker 3:

Okay, so you got to file this BOI report, whether you believe that it's going to be worth it or be helpful or not.

Speaker 2:

So now let's turn to those S-corp owners. So now for those of you that have made the decision to take your LLC and make an S-election or you file as an Inc to begin with or a PC or a PLLC or whatever, and now you've made that 2553 S election. Now we have other podcasts on why you would do that. They're fantastic. If you're creating ordinary income, you're not going to do an S corp if you have just rental property. So listen to some of our prior podcasts on when to convert to an S-Corp. Matt and I both have articles and ongoing shorts and videos everywhere to help you understand that. But if you've made that commitment to be an S-Corp and you're getting the benefit of saving on self-employment tax and opening the door to some additional write-offs and really greater audit protection, your chances of an audit go down dramatically. With an S-corp You're actually not increasing your risk decreasing. So if you make that decision, you've got to do a couple other things to get those benefits on top of what we've already talked about.

Speaker 3:

What comes first for you. Well, now you're doing an actual payroll report to the IRS at least every quarter. That's going to say, and this is where you're getting the tax benefit. You're doing payroll to save on self-employment tax. So don't think of this as a burden. Think of this as the tax savings opportunity filing report, not your payroll report.

Speaker 2:

Yeah, you're making money every time you do that report. Yeah, so quarterly payroll yeah, those forms are going to be a 941. Some states you have to deal with SUDA state unemployment even though you're the only employee. Those are few states. There's FUDA federal unemployment. You're going to file a 940. At the end of the year You're going to get a W-2. The easiest way to just deal with that whole process is get a payroll service. We've got a good relationship with ADP. We think they do a great job. We'll make sure down in the description is a link to the best route to get their help. But ADP does a great job of just saying start to finish. Here it is peg your payroll and you don't have to take a paycheck every two weeks.

Speaker 2:

You can do a quarterly payroll report. Just claim how much payroll you want to do. It's simple, it's easy, it's straightforward. Yeah, Boom, boom.

Speaker 3:

Yeah, you're pretty much just transferring money from the escort bank account to your personal bank account and then in that quarter you're just saying, all right, how much of that was going to be allocated to payroll that I took versus what is kind of profit out of the business, so to speak, and so, and that's where you get into the payroll matrix. You know that's true, you know know how to nail that and and so, but that's it. I think payroll think of this as unique to the LLC. You know you're not doing payroll unless maybe you have employees you're adding, you might be starting to add payroll, but you're not doing an actual payroll for yourself as the owner.

Speaker 2:

Yep. Now the second thing that you want to worry about if you're going to make that S election is now you're required to do a separate tax return With an LLC. You might just throw that all on your 1040, your personal return, a Schedule C, a Schedule E, whatever, but once you make that S election, you got that quarterly payroll and then you've got an 1120S tax return at the end of the year. The goal is you're going to save money on your 1040 because the reporting is not going to be there anymore and all the reporting would be on an S corp with which has a 15 times that's 1500% less chance of an audit. You're going to create tax savings on FICA or social security, but you have to do that tax return. It's due by March 15th.

Speaker 2:

If you don't file an extension, the penalty is $300 per month until you uh, for up to six months. It's bad, it's due by March 15th. If you don't file an extension, the penalty is $300 per month for up to six months. It's bad, it's ugly. Make sure you file an extension, get it done. But I think it's just quarterly payroll and the annual tax return. That's really the added layer. Other than that, it's all that list we already talked about.

Speaker 3:

Yeah, it's the same set of stuff. Make sure you're doing your annual renewal. You've got your annual minutes. You've got the BOI report Again, this is the new thing on the new kid on the block of things to do. And then you got the payroll annual tax return and you could have had an annual tax turn. On the LLC, maybe it's a partnership entity. Mark and I have some LLCs together that own real estate, you know, and that's a partnership because we've got to do a 1065 return for that. So you might also have a company return at the LLC level if you have partners in it or do a partnership. Or, let's not forget, let's say you did the LLC at the state but you did an S selection for tax purposes, all these little S corp things we just talked about. You're doing those, you're doing payroll.

Speaker 3:

You're doing the 1120S because you are an S corporation for tax purposes. Now.

Speaker 2:

Yeah, I'm trying to think. If there's the one thing I would just say finally, is maybe you're going to do a little better bookkeeping. Because if you're going to do an S corp tax return, a balance sheet, a P&L, it's got to tie out. And so if your books are kind of a mess and you just make this S selection and think you can keep being a train wreck at the end of the year it's going to cost you more. You're going to have to pay your accountant more to clean it up, tie it out. So I think, just a greater commitment to either using a monthly or quarterly bookkeeping service, just really stay on top of it. It's going to make you a better business owner. You're going to make better decisions. You're going to get better write-offs. Don't think of better bookkeeping as a burden. Think of it as really setting you free. You don't have to stress about it.

Speaker 2:

How many of you listening right now are stressed that your books are a mess? Get over that. The money is well worth it. I promise you, whatever you spend in good bookkeeping, you'll get back double in tax savings because you just get better write-offs. You know it. You know what I'm saying, it's true. So, and if you can't find a good bookkeeper, you don't know what to do. We've got our TaxPro network Almost a thousand tax advisors around the country in our TaxPro network. Now Go to markjkohlercom network at the top. Start searching Big, small, young, old, male, female, West Coast, East Coast. Speak Spanish. Don't no crypto, Don't whatever. You can find an advisor that speaks your language, Whatever that not literal language, but whatever you do whatever, and help you get your books in alignment.

Speaker 3:

So love it. Great tip. That's kind of the boring tip, but there's a lot of money in that tip.

Speaker 2:

You approved a lot of money in that one.

Speaker 3:

Well, all right. Well, hopefully we've given you the things you need to know to make sure you're actually maintaining your LLC or S corporation so you're getting the real benefits out of it, the tax savings, the asset protection that you're hoping for. We want to make sure you're actually getting that, so make sure you keep it maintained. We've given you lots of places to go. We're here to help the companies we mentioned on our networks and other places, or go get it from the professional that you're using, or maybe ask your lawyer account. Hey, do you guys help us or have a service to make sure I'm maintaining this and keeping this up to date? Yep, love it.

Speaker 2:

Thanks everyone and we'll see you next week for another episode of the Main Street Business Podcast. See you then.

People on this episode

Head Shot

Mark J. Kohler

Host