In this episode you will learn all of the juicy benefits of starting and owning a legally incorporated business. You will learn how you can reduce or eliminate personal tax, protect your personal assets, increase your bottom line, lower your debt & build a powerful asset – developing a more robust retirement!
Running your business with a sole proprietorship might not always be a healthy option.
In today’s world there are always risks of liability like having your assets threatened in the event of bankruptcy or lawsuits which is real and frankly intimidating for many entrepreneurs. On top of that, being personally liable for debts incurred by your business means that you could lose personal assets if things go wrong!
In this episode I discuss what a legally incorporated business is, all of the upside of incorporating, the tax benefits of owning a small business when you incorporate as either an LLC or an S Corp, and how to plan ahead properly so that you can reap the awesome rewards and set yourself up for a tax-favored retirement strategy!
Points to note:
- Reducing taxes for college education – can you hire your children to work for your company? It may lower taxes on both ends – their salary becomes tax-deductible for you, and they’ve to pay the lowest bracket taxes, being full-time students.
- Pass-through taxation – avoiding the double taxation of money that comes into your business.
- How to set up your own corporation – work with a company that can file all the papers and register you with the state. Example – LegalZoom.com
Similarities:
- Business owners in an LLC or S-Corp are generally not personally responsible for their business debts or liabilities.
- Both are pass-through tax entities. However, for an S-Corp, you must file your business tax return, and for LLC, you only have to file a business tax return if there is more than one owner.
- Both are subject to state-mandated requirements like filing annual reports and paying required fees.
Differences:
- An LLC can have any number of members, while an S-Corp can only have 100 shareholders or fewer.
- S- Corp shareholders must be US citizens or residents; LLC doesn’t have such requirements.
- S-Corp has more advantageous self-employment taxes than LLC – it’s a clear winner in this regard!
If you’re only starting, it’s best to start as an LLC to ease the process. You can change to an S-Corp any time later, except for a business whose sole income is tied to the hours that you’re working – like consulting.
- Website references for salary indexes – Payscale and Glassdoor. If you want to set a personal payroll, you could use QuickBooks Online or ADP.
- A SEP (Self-Employed Plan) IRA has a much higher contribution limit than a Roth IRA.
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