When Should I Form LLC and S Corp
When should you be forming an LLC? If you are no longer a hobby. Even if you are a hobby in some situations, it's a great idea to form an LLC. If there are multiple people, we talked about the danger of partnerships. If there are lots of people or at least one other person who is joining you. That is a red flag for me if there's no LLC in place. Because personally, I don't want to be responsible for my business partner as innocuous as he or she seems. I don't want to be responsible for their ish. I would much rather take it into consideration from the beginning of the business relationship and form an LLC. Create that separate and distinct from myself and from them so that if there is any kind of financial or legal liability later, the LLC is the one who is responsible for answering to those kinds of questions. Not me personally. If you are earning more than $30,000 in profit per year, you might also want to form an LLC. It's so funny because a lot of you guys have these great business...
ideas and they take off. And that's amazing, that's what we all hope for. But sometimes we forget in the course of growing so quickly that we're really profitable and actually you might be paying a lot more in taxes than you need to be. So with an LLC, you are able to form what's called an S Corporation. And with an S Corporation, if you're making enough money, you could be reducing your tax liability. And then finally, if you are applying for any kind of business financing, any kind of business loan. Any kind of grant, anything like that, it's a really great idea for the LLC to collect that money and hold on to it so that there is no question later on about who owns that money and who is accepting that loan and who needs to be repaying it. It's the business who's doing that. It's not you personally or your partner. All right, we talked about the free guide. So definitely check that out. But here's just a quick overview. The steps that you're gonna be taking as you setup your LLC are the following. You're going to choose an LLC name. And I want you to sit tight because an LLC name is not the same thing as what you might see at the top of someone's website or on their logo. So an LLC name could be literally anything as long as it's available and you know, basically follows the right guidelines. So no vulgarities, nothing weird like that. For example, I have a podcast that's called The Creative Empire Podcast. That is not the name of that LLC. The name of the LLC is RPCS Holdings LLC. It doesn't matter what the name of your LLC is. It doesn't matter if it's registered. That's not a trademark per se. And so you don't need to spend a lot of time stressing about this. My first LLC, well not my first, but my first LLC in this business is Christina Scalera LLC. Done. Once you have that name, head on over to your Secretary of State's website. Which usually, most states are calling this the Secretary of State's website. Dumb will call it something different. So for example in Michigan it's called the LARA System. LARA. And so your state might be a little different. Check out that resources guide that we're gonna give to you to see what it's actually called in your state and the direct link to the website will be in that guide as well. But if you are just searching generally and you can't remember, head on to what's called the SOS, the Secretary of State. You'll be able to apply for your LLC there. They are typically pretty good at prompting you. But that's also why we're giving you that free guide. Because if you get hung up on any step of the procedure, you will be able to go through that guide and use it as a tool to help you confidently fill out your LLC application. And make sure that you understand what it is that you are applying for. So, if you want that, head on over to thecontractshop.com/CLHB it's also on this page. You won't even need to leave the page actually. Head on over. Just somewhere on this page there is going to be this guide, make sure you download it. And then you are going to be able to get everything that you need in there. We have touched on S Corporations just a tad. And I want to dive into this a little bit more. This is really really important for those of you like I said that are making about $30,000 plus in profit, not revenue, but profit every year. Number one (laughing) you need to be making significant amount of money with your business, this is no longer a hobby. This is something where you are profitable and you are seeing that money coming in. A lot of times some people with form prematurely and they will end up paying more in taxes or higher quarterly tax payments because they formed a little bit too prematurely. If you are at that level, congratulations, it's time to talk to an accountant and make sure that you are paying the taxes that you need to pay and then hopefully not any more so that money can be reinvested back into your business. New employees, whatever it might be that you need to invest in. The other time to consider an S Corporation is if you are bringing on some kind of new partnership and the business is growing substantially. That could be a great indicator that you are ready now for this new tax filing status or if you're merging companies and you are expecting a lot more profit to be coming in over the next year. And then finally if you have employees, and you would prefer to manage them on a payroll type system, pay quarterly taxes, an S corporation could be a great benefit for you as an LLC owner. So just to be totally clear, an S corporation is a new tax filing status. For the purposes of this presentation, and not to get too in depth, we have our LLC. And the LLC can file as either an S corporation when it comes to their taxes or a sole proprietorship. So even though we have the legal protection of the LLC, it is choosing to file it, new entity. Your LLC can file either as that S Corporation and reduce the tax liability if we're making a certain amount of money. Or you are filing as a personal tax return, your own LLC is filing as a sole proprietorship. So just to clarify that. You are not totally forming a whole new entity with this S Corporation. It's actually just a new tax filing status for the purposes of this presentation.