WEBVTT
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Hey everybody.
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Thanks for listening today with the tax season and what the start of my firm's season to start to review tax returns for clients.
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I wanted to throw back and rewind to a popular 2023 episode all about differences between business entities.
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And we'll be back next week with brand new episodes.
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So hopefully we'll catch you then.
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And if you'd like to submit a question to be answered on our next listener Q&A episode, we're still taking questions for the next episode.
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You can head on over to Optometrywealth.com/podcastquestion, or you can use the link in the show notes and submit your questions there.
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In the meantime, enjoy the episode.
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Hey everybody, welcome back to the Optometry Money Podcast, where we're helping ODs all over the country make better and better decisions around their money, their careers, and their practices.
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I am your host, Evon Mendrin, Certified Financial Planner and owner of Optometry Wealth Advisors, an independent financial planning firm just for optometrists nationwide.
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And on today's episode, I'm going to continue our tax series, two episodes ago, episode 47.
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We talked all about on a basic level how income taxes work, how the tax rates work, how your tax is calculated, how withholdings work, mostly from a household level.
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And you can find that just by going to optometrywealth.
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com slash 47.
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And I'll throw a link to that in the show notes as well, but I want to continue this tax theme.
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And from, from this episode, talk all about businesses.
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I want to go through the different business entities that you can select.
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so if you are a practice owner or even an independent contractor, or if you're self employed in any way, I want to go through the different types of business entities that you can select and some of the liability protections with each one, I want to talk a lot about how they're taxed.
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And some considerations at the end for deciding which business entity to choose.
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And I'm not going to go too deep into the legal, aspects of operating these businesses from the legal documentation or too much in depth from the liability standpoint.
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Number one, because this is a tax series, right?
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So I kind of want to keep that focus, but also I think I want to have an attorney on that can talk more generally about asset protection and how these different business entities fit in.
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But we're going to go through a lot today.
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And business taxation, or just trying to make sense of all these different business types, it can be pretty complicated for, for a lot of reasons.
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There's a lot of rules and details and nuances.
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with each entity.
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And there's a lot of nuances and rules, not only with each entity, but with each state.
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So there's a lot of differences on how each state is going to recognize or tax all these different business types.
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but there's also a difference between the legal entity that you own and the way it's taxed, which can confuse people, I think.
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So this is really a place where legal, tax and financial expertise all come together.
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So this is going to be a general basic overview of the differences between each business type, mostly from a federal tax level.
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but this is definitely a place where you want to talk with your whole, for whole professional team, not just tax, not just financial advisor, but an attorney that knows business as well and get some input from your, your whole professional team.
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So let's dive in here and when you think about the taxation of businesses.
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and business entities and business types.
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There's two categories or two buckets of, of taxation for businesses.
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On the one hand, you have pass through business entities, right?
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You have one type called pass through businesses.
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And on the other hand, you have C corporations.
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Pass through businesses are, not surprisingly, everything that's not a C corporation.
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And I'm going to go through all the different ones, but the reason that they're called pass through businesses is because those businesses don't pay their own income tax.
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Even if they file a tax return, it's informational.
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The businesses themselves don't pay their own income tax.
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Instead, all of the net income, the profit from that business, passes through to the tax return of the owner, to your tax return.
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And that income is taxed on your tax return at your personal tax rates.
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So there's one layer of taxation.
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All of that.
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Net income just passes through to your tax return and it ends up on, on your personal tax rates.
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a C corp on the other hand, is different and, and we'll talk about that towards the end, how that's different.
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Right.
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So there's two different general categories.
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Let's start with the pass through type businesses.
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What, what do those look like?
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Well, the first one to look at is the sole proprietor.
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The sole proprietorship may be the simplest type of business to set up and maintain.
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Part of which is because there's no actual separate entity.
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It's not its own separate business entity.
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Sole proprietorship is basically you as an individual deciding to do business.
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You might have a doing business ads, you might have a business name, but there's no legal separation between you and your business.
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which leads to some liability issues because you've sort of left yourself open to the liability that might happen within the business.
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And you've opened yourself up to all of your personal net worth, your personal assets, being vulnerable to the business liabilities.
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This is why good insurance coverage is super important if that is you.
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And this is another place where you want to talk to an attorney and say, Okay, here's my business.
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Here's my situation.
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What liability do I really hold and what's the best entity for me?
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Alright, so sole proprietorship, it's the most simplest to maintain.
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There's no legal separation between you and your business.
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There's no separate entity.
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By default, your social security number is sort of your, your EIN, your employer identification number.
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but you can get a separate EIN number, which I think makes sense.
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if you're going to have like a, a solo 401k retirement account, you actually have to.
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So you can get a separate EIN number.
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you can apply at the IRS website, which I'll throw into the show notes.
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And that's really the only place you really want to go to do this, to, to apply for this EIN number.
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It's a, a really straightforward.
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You can sign up for this free EIN now by going to the IRS website.
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on your personal 1040 income tax return, and you're gonna find a Schedule C, right?
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So that's where all of your business information is recorded, and that's how your, your net profit's gonna be, calculated on that form.
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So you'll, you'll pull up your, 1040 personal tax return, one of the line items there in the very beginning, where it lists all of your income, is gonna be business income, your Schedule C income.
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And one thing to know about sole proprietors or self employed, right, whenever you hear the word self employed, it means you're taxed on a Schedule C like this, is not only is their income taxed as all that income ends up on your personal tax return, But there's also self employment tax, which you're going to see on Form SE, Schedule SE.
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and that self employment tax is Social Security and Medicare taxes that you may have seen when you were an employee.
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You would have seen those taken off of your pay stubs, withheld from you from your pay stubs.
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Well, when you're self employed and you're sole proprietor, you're considered both the employee and the employer.
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So you're going to be paying both halves, both sides of that self employment tax, which equals about 15.
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3%.
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Of course, Social Security's only, only goes up to the, Social Security wage base, so may not be on all of your income, but in general, that combined self employment tax rate is 15.
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3%, plus if your income gets to a different level, a certain level, there may be an additional Medicare tax that kicks in.
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And this self employment tax is something I think that surprises people the most, especially when you are a cold start and you're just starting to see practice growth, or you're an independent contractor and you're not used to handling a lot of this on your own, you're used to it being.
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taken out of your, your withholdings from your pay stub.
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this self employment tax I think is something that surprises people as they get to tax time and they say, Oh my goodness, what does this giant tax do?
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So, on a sole proprietor, you have income taxes, you also have a self employment tax.
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You do get a deduction for half of that, half of that self employment tax.
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It's not going to be on your Schedule C, right?
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It won't be listed as one of your, business deductions.
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It will be on the adjustments to your income before your adjusted gross income is calculated.
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So do you get a deduction for that?
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another thing you get as a Schedule C as a sole proprietor is the qualified business income deduction.
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QBI deduction is a 20 percent deduction that pass through businesses get on essentially net operating profit, right?
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So as a Schedule C, as a sole proprietor, that's net self employment income.
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So your revenue minus your, minus your different taxable business expenses.
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There's a few adjustments there, but it's essentially a 20 percent deduction on your net income from self employment.
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And that's something you get on that full amount, right?
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So that's something you're eligible for.
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there's also other deductions, for example, self employed retirement accounts, solo 401ks, SEP IRAs, you're eligible for those.
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as well as a health insurance premium deduction, a self employed health insurance premium deduction.
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If you're not on a spouse's plan and you're paying for health insurance out of pocket, that's something to keep in mind as well.
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how do you pay yourself as a sole proprietor?
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Well, there's no wage that you're able to pay yourself, right?
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You're not able to pay yourself a salary or a W 2 wage.
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So you're really just going to distribute dollars out of your business account to your personal household account.
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All right, it's just going to be a distribution.
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what about tax withholding?
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Well, as I mentioned, there's no wage.
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You're not going to have pay stubs.
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There's no payroll.
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So you're going to have to be making quarterly estimated tax payments.
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And those are due in April, June, September, and January.
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If you're married and your spouse is working, you know, you might be able to handle the withholdings on your spouse's paychecks because it's really all about total withholdings in the household on the tax return.
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But from your, just from your business standpoint, that's how you're going to be handling withholdings, right?
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So sole proprietorship, the most simple, opens you up to the full liability of the business.
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You have income taxes, self employment tax on the Schedule C and on the Schedule SE, and then some deductions there for the business.
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Next, let's talk about partnerships.
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Similar to the sole proprietorship, a partnership is more than one person deciding to do business together.
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So just like the sole proprietorship, there's no separate business entity.
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You're still open to the liability of the business.
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And in fact, if you're, if you're all general partners, you're all active partners in the business.
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You may even be liable to the liability of your partner's actions as well.
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So there, there might even be more liability there.
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And I think it's important to say we often, when we talk about optometry practices with more than one owner, we often say partners, but we rarely are talking about the, the legal partnership when we say partners.
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I think when we say partners with optometry practices, often it's just the fact that there's more than one owner.
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It's your co owner.
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And like a sole proprietorship, as I mentioned, there's that liability piece for general partners.
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There's also the self employment tax, but you do also qualify for qualified business income deduction.
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So you get that as well.
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There's also limited partnerships too, where there's a general partner who's actively doing the work, actively involved in the business.
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And then there's limited partners that are really like passive investors and their liability is limited to their investment, right?
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So they do actually have limited liability.
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You're going to see that a lot in, in, real estate investments, for example, you'll see that, so those are limited partnerships.
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With partnerships, they are a highly complicated area of tax law.
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And there's a lot of flexibility with partnerships in terms of how you can allocate income and gains and losses between the different partners.
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They don't have to be based on your specific percentage of ownership.
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You can't pay a wage, a W 2 salary in a partnership as well, but you can take a guaranteed payment.
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which is a similar concept.
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operating agreements are incredibly important in a partnership to spell out all of the details that get involved there.
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So again, talk with your attorney.
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A partnership does file its own tax return, Form 1065, and that is due by today.
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As of the date that this will go live, March 15th, that Form 1065 partnership tax return is due, unless you choose to extend and you've got six months later.
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Bye.
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Once that's filed, you get a Form K 1, which shows you your share of business profit and loss.
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And that's what ends up on your personal tax return.
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So, again, this doesn't pay its own tax, the partnership, even though it does file its own tax return.
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And then you're going to see that information on the K 1 on your Schedule E in your personal tax return.
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So that's a partnership, two or more people, working together, essentially going into a venture together.
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It's not common due to the liability issues, but, but it's available.
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Now I want to talk about actual separate entities, right?
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Separate entities from yourself that are going to provide that liability protection.
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And the first one, which is one of the most common forms of entity type is the Limited Liability Company, the LLC.
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LLCs are not actually a corporation, even though they are a separate entity.
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Entity from yourself.
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they've been around, I think since 1977, and depending on your state, like I mentioned, are one of the more popular entity types because they provide that liability protection that corporations provide.
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But they also have quite a bit of flexibility and they may be simpler to maintain than a corporation due to no requirements for like board of directors or corporate bylaws or, or minutes or things like that.
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So they may, they provide some flexibility.
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They may be simpler to maintain.
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the owners are called members, not shareholders.
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They're called members and they provide limited liability, meaning you have a separate entity from yourself.
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so your liability as the owner is limited to your investment in that business.
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Your personal net worth is not involved in that.
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Of course, when we talk about liability, that's different from your, professional liability as an optometrist.
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You're, of course, going to want to make sure that you're insured from a malpractice insurance or professional liability insurance standpoint.
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But if someone trips and falls in the practice, sues your practice.
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an LLC is going to provide you that limited liability if you are maintaining it appropriately, meaning you are meeting the requirements to maintain this limited liability, the LLC as a separate company.
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You're not co mingling, co mingling your business assets with your personal assets.
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You've got separate bank accounts, separate finances, things like that.
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How are LLCs taxed?
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All right.
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How do we handle the taxation of an LLC?
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This is where it gets interesting because LLCs actually have flexibility in the way that they can be taxed because you can choose the way that you want to be taxed.
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So, let me explain.
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By default, if you are a single owner LLC, right?
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So, a single member LLC, you're considered a disregarded entity.
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What that means is that the IRS ignores your LLC.
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and it's going to tax you basically like your sole proprietorship.
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So the taxation is pretty straightforward.
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it's going to be taxed pretty similar to like you would have been as a sole proprietor.
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So you're going to have a, everything we mentioned about the sole proprietorship applies to this from a federal tax standpoint.
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You'll have a Schedule C.
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You're going to be subject to self employment tax, but you also have the qualified business income deduction to, to take into account, plus the other business deductions and retirement plans available.
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All right, so all those same rules apply from a federal tax standpoint.
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If you have two or more members, you're by default taxed as a partnership.
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So all the partnership rules will apply from the tax standpoint.
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So I guess it's important first to realize that Unless certain decisions are made, the LLC is not going to save you taxes.
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You're going to be taxed basically the same as if you would have been if you are a sole proprietor.
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But it's initially going to be about liability protection.
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And that's what's important here, right?
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Again, all of those different expertise and disciplines and topics come together here when it comes to business formation.
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So that's by default, a single member LLC is going to be taxed just like a sole proprietorship.
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or if there's two or more members, two or more owners, it's going to be by default taxed as a partnership.
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However, as an LLC can elect or choose to be taxed either as a C Corporation using Form 8832 or as an S Corporation using Form 833.
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2553 and this is where it gets very interesting.
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and I'll talk about how those, the, the taxation of those two are handled next, but you can choose to, when it makes sense, if, or when it makes sense.
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To be taxed differently and you'll submit that, let's say you wanted to make that election, you could submit that, by two months and 15 days or 75 days after the start of your tax year, which would be basically right now, or if you're just starting your entity, if you're just starting your business, 75 days after the start of your business.
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Now, I've seen a lot of examples where people are filing that late retroactively.
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and you have to give a reasoning for why you're doing that, so talk with your tax professional if you're wanting to revisit the way that your entity is taxed, but that's where it gets interesting with an LLC is that it provides that liability protection if you're maintaining it correctly and you get some flexibility with deciding how you want to be taxed.
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So LLCs are formed with your state, you're going to get an operating agreement, makes a lot of sense to do that.
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and then you can also get an EIN number with the IRS.
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Once that's open, the states are going to treat this differently, right?
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So this is a big disclaimer here.
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Each state's going to treat this differently and how they tax it, the fees involved to operate it, and whether they're going to acknowledge it or, whether they're going to allow you as an optometry practice to be formed as an LLC.
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Right?
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So.
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talk with your professionals.
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This is going to be the big disclaimer throughout this whole conversation.
00:19:25.038 --> 00:19:35.778
that's something that you're going to see obviously as a, as an optometry practice, if that makes sense to go that route, but also independent contractors tend to get advised to open up an LLC as well.
00:19:36.019 --> 00:19:40.169
not only from a liability standpoint, but also really from a tax planning standpoint.
00:19:40.169 --> 00:19:43.219
And that's where this next entity decision comes in.
00:19:43.894 --> 00:19:45.953
Which leads me to the S Corporation.
00:19:46.703 --> 00:19:51.963
Now the S Corporation is not actually a legal entity that you can go and form.
00:19:52.673 --> 00:19:57.794
You're going to either form an LLC or you're going to incorporate and form a corporation.
00:19:58.394 --> 00:20:03.173
So it's not an actual legal entity that you can form, but it's a tax designation.
00:20:03.473 --> 00:20:07.413
It's a way that you're choosing to be taxed under Subchapter S.
00:20:07.874 --> 00:20:13.823
So really you're going to have an LLC that's choosing to be taxed as an S Corporation, or you're going to have a corporation.
00:20:14.733 --> 00:20:16.683
It's going to be taxed as an S corporation.
00:20:17.253 --> 00:20:23.134
Whenever we say we own an S corporation, that's really what we mean, is we own a business that's choosing to be taxed in that way.
00:20:23.953 --> 00:20:31.354
And one of the main benefits of choosing to be taxed as an S corporation is number one, you have, it's a pass through entity, right?
00:20:31.354 --> 00:20:38.064
So you have a single layer of taxation, but you also, potentially save taxes on self employment taxes.
00:20:38.574 --> 00:20:41.304
So those are some of the main benefits to using an S corporation.
00:20:41.314 --> 00:20:43.463
And there are some requirements.
00:20:43.773 --> 00:20:47.423
So number one, you have to be a domestic entity, a domestic corporation.
00:20:48.034 --> 00:20:52.294
You can only be owned by individuals, or certain trusts in the States.
00:20:52.304 --> 00:20:55.044
So you can't be owned by partnerships or corporations.
00:20:55.884 --> 00:21:00.064
It can't have more than 100 shareholders and you can only have one class of stocks.
00:21:00.064 --> 00:21:02.544
You can't have a voting class and a non voting class.
00:21:02.943 --> 00:21:06.084
All of those should be pretty easy to meet as an optometry practice, right?
00:21:06.084 --> 00:21:08.233
So, nothing really to stress about there.
00:21:09.233 --> 00:21:15.634
As the owner of an S Corporation, you are both An employee and an employer.
00:21:16.314 --> 00:21:27.304
So because you are an employee, there is a requirement, not an option, a requirement to pay yourself a reasonable W 2 wage in the business.
00:21:28.064 --> 00:21:33.713
And the first dollars out of that business to yourself have to be meeting that reasonable wage.
00:21:34.364 --> 00:21:44.009
I've seen a lot of examples and had too many conversations where That reasonable wage was 30, 000 for an optometrist working full time in their own practice.
00:21:44.409 --> 00:21:48.729
Clearly that is under what you would expect to be paid as an optometrist, right?
00:21:48.729 --> 00:21:50.759
So you do need to pay yourself a reasonable wage.
00:21:51.288 --> 00:21:53.648
The IRS has some guidelines around what that means.
00:21:53.699 --> 00:22:03.729
I mean, reality, when you boil it down, it's what would you pay someone else to do your exact work with similar experience to do the same work that you're doing in the practice as an optometrist?
00:22:04.213 --> 00:22:06.564
as a manager, as an administrator, right?
00:22:06.743 --> 00:22:09.064
So what would you have to pay yourself to do that?
00:22:09.324 --> 00:22:16.249
It's reasonable, and because you have this requirement to pay yourself a reasonable wage, You're going to have payroll, right?
00:22:16.249 --> 00:22:18.199
So you need to be running payroll throughout the year.
00:22:18.659 --> 00:22:36.189
you can also handle federal state, employment tax withholdings through that payroll, just like you would have been if you're working somewhere else, the retirement account contributions have to be your employee amount has to be withheld through your pay stubs, just like it would be if you're working somewhere else.
00:22:36.509 --> 00:22:36.739
And.
00:22:37.028 --> 00:22:44.028
For an S corporation, for an S corp, you do need to pay employment taxes on your wages.
00:22:44.118 --> 00:22:50.298
So, Social Security, up to that wage base, I think is around 160, 000 in 2023.
00:22:50.689 --> 00:22:58.608
So, Social Security taxes up to the wage base, plus Medicare taxes, plus the extra Medicare tax, the additional Medicare tax, if your income is high enough.
00:22:59.159 --> 00:23:06.808
So, with an S corporation, you have to pay yourself, on the one hand, a reasonable wage, and on the other hand, everything that's left is profit, is net income.
00:23:08.118 --> 00:23:12.989
On net income, on profit, there is no self employment tax.
00:23:13.544 --> 00:23:17.683
There is no social security tax and there's no Medicare tax on that income.
00:23:18.344 --> 00:23:19.713
Only income tax.
00:23:20.483 --> 00:23:23.144
That is really where your tax savings comes in.
00:23:23.544 --> 00:23:26.044
so for example, let me give you an example here.
00:23:26.044 --> 00:23:28.513
Let's say you, your owner's net, right?
00:23:28.513 --> 00:23:39.023
So you're, you're optometry practice after you have your revenue coming in, collected, you pay for all your, your operational expenses and you're left with 150, 000, right?
00:23:39.054 --> 00:23:40.814
That's sort of your total owner's net.
00:23:41.564 --> 00:23:44.773
And let's say you paid yourself a 100, 000 wage throughout the year.
00:23:44.784 --> 00:23:46.993
That means you have a 50, 000 profit.
00:23:47.743 --> 00:23:54.354
On that 100, 000 wage, you would have had to, handle social security taxes and Medicare taxes, right?
00:23:54.364 --> 00:23:59.653
All of the usual employment taxes, including the state and local, are going to be handled on that wage.
00:23:59.713 --> 00:24:00.983
They're going to be assessed on that wage.
00:24:01.503 --> 00:24:04.854
However, you do not have those on your 50, 000 profit.
00:24:05.163 --> 00:24:10.263
So for example, if the, if the self employment tax was about 15.
00:24:10.263 --> 00:24:24.564
3%, you would be saving somewhere around 7, 000 of self employment tax by switching to an S corporation versus simply being taxed as a, single member, single member LLC on a Schedule C.
00:24:25.304 --> 00:24:27.673
So that's where that tax saving is going to come in.
00:24:29.743 --> 00:24:35.233
That's not the end of the story because there's more that goes into choosing to be taxed as an S corporation.
00:24:36.094 --> 00:24:40.193
Number one, one big difference is the qualified business income deduction.
00:24:41.023 --> 00:24:58.864
I'm going to have a separate episode next, next episode all about the QBI deduction and what goes into that because I think there's enough that enough details in that that it warrants its own, its own conversation, but that QBI deduction, you cannot take that deduction on the wages that you pay yourself.
00:24:59.824 --> 00:25:03.989
You can only take that deduction On the profit of your business.
00:25:04.368 --> 00:25:13.479
so going back to that example, if you had 150, 000 owner's net, a hundred thousand of that was your wage, your W2 wage as an employee.
00:25:14.189 --> 00:25:18.388
That 50, 000 profit is the only thing you can take the QBI deduction on.
00:25:19.098 --> 00:25:26.269
So while you're lowering self employment taxes, you're also potentially dramatically lowering your QBI deduction.
00:25:26.898 --> 00:25:30.128
There's more that goes into this equation than meets the eye.
00:25:30.858 --> 00:25:39.009
And I, I would say that, especially for independent contractors, you know, if you're a private practice owner and you are.
00:25:39.314 --> 00:25:46.903
Successful, your net income is going to get to a point where it probably makes sense, all things considering to, to elect an S corp, status.
00:25:47.094 --> 00:25:50.773
It may not be right away if you're cold starting, but at some point you likely will be there.
00:25:51.193 --> 00:26:03.723
However, if you're an independent contractor, you may be advised to, when your income gets to a certain point, to open an LLC and choose to be taxed as an S corporation.
00:26:03.763 --> 00:26:09.683
And I just want you to think really carefully about that because it's not just about these self employment taxes that you might save.
00:26:10.358 --> 00:26:13.489
You also need to consider that 20 percent QBI deduction.
00:26:14.148 --> 00:26:22.308
you also need to consider the headaches and costs of filing a separate tax return, of having payroll.
00:26:22.318 --> 00:26:23.689
Now you have to handle payroll.
00:26:23.979 --> 00:26:29.108
you have to handle your 401k contributions differently because you have to do it through payroll as well.
00:26:29.624 --> 00:26:39.993
So you have to keep in mind all of the additional costs and headaches that go into, operating as an S corporation that you may not have had when you were just a, an LLC.
00:26:40.463 --> 00:26:42.284
So there's a lot more to keep in mind.
00:26:42.993 --> 00:26:45.953
An S corporation does file its own tax return.
00:26:45.993 --> 00:26:52.763
Again, it does not pay its own tax, but it does file its own tax return due at the same time as your partnership returns March 15th.
00:26:52.844 --> 00:26:55.374
Today, that's the 1120S.
00:26:56.223 --> 00:27:05.384
Once that's filed, similar to a partnership, you're going to get a K 1 and you're going to see your share of the net profit from that business on your Schedule E.
00:27:05.983 --> 00:27:14.713
Remember, pass through business entities, their net income is automatically going to be passed through to your personal tax return, right?
00:27:14.713 --> 00:27:21.844
So the profit is going to pass through and end up on your tax return and it's already going to be taxed.
00:27:22.134 --> 00:27:29.634
regardless and totally separate from whether you keep that profit in your business bank account or whether you distribute it to yourself.
00:27:29.854 --> 00:27:32.544
Distributing it to yourself does not cause it to be taxed.
00:27:32.564 --> 00:27:38.673
That profit's already either been taxed in past tax years or it's going to be taxed in that current year, right?
00:27:39.074 --> 00:27:43.054
It's totally unrelated from whether you keep it in the business bank account.
00:27:43.203 --> 00:27:47.983
Now distributing profit out of your business does impact other things.
00:27:48.003 --> 00:27:51.913
It impacts, for example, the cost basis in your practice.
00:27:52.683 --> 00:27:54.743
That's a conversation for another episode.
00:27:55.523 --> 00:27:57.824
So there's other things that it's going to affect.
00:27:57.834 --> 00:28:05.763
So you do want to talk with your advisors, your tax pro, your financial advisor, to plan around how you're going to pay yourself and how you're going to distribute.
00:28:06.659 --> 00:28:10.308
But it's, it's unrelated from the income tax itself.
00:28:10.868 --> 00:28:16.048
And, what it really comes down to is how are you planning to use the extra cash flow in your practice?
00:28:16.439 --> 00:28:36.469
After you've paid for your core operating expenses, after you've set aside money for taxes, been able to make your minimum debt payments, after you've set aside enough for a savings amount within the practice, or planning for anticipated investments in the practice, After you've started to tackle those things, where do you plan to take and use that cash flow?
00:28:36.989 --> 00:28:43.009
Whether it's in the household, investing, whether it's paying off debt, whatever that may be, whether it's improving your life, right?
00:28:43.009 --> 00:28:44.548
What is your plan for that cash flow?
00:28:45.038 --> 00:28:46.459
So just something to keep in mind there.
00:28:46.838 --> 00:28:52.128
Distributing cash out of your practice is not going to cause additional income tax.
00:28:52.949 --> 00:28:56.199
It's going to impact other things, but not that income tax.
00:28:56.969 --> 00:29:00.108
I think where that comes from is what I'm going to talk about next.
00:29:00.568 --> 00:29:01.979
are C corporations.
00:29:02.888 --> 00:29:06.419
C corporations, as I mentioned earlier, are not pass through businesses.
00:29:07.028 --> 00:29:21.568
C corporations have double taxation because a C corporation, just like you would see if you purchased XYZ publicly traded stock, a C corporation pays its own tax at the corporate level.
00:29:22.038 --> 00:29:26.128
there's a flat 21 percent tax rate as of right now, as of recording.
00:29:26.638 --> 00:29:29.078
so it's going to pay its own tax on profit.
00:29:29.624 --> 00:29:30.723
at the business level.
00:29:31.344 --> 00:29:38.973
And then if you distribute dividends to yourself as the owner, those dividends are taxed again on your personal tax return, right?
00:29:38.973 --> 00:29:41.183
So there's two layers of taxation there.
00:29:41.604 --> 00:29:48.273
you do get to take advantage of certain fringe benefits that you wouldn't get to as a pass through business owner, like an S corporation owner.
00:29:48.594 --> 00:29:58.203
but again, because of that double taxation, a business like optometry, an optometry practice where most of that profit is going to be distributed to the owner anyways.
00:29:58.693 --> 00:30:02.983
There's not substantial reinvestment back into the practice for massive growth.
00:30:03.354 --> 00:30:05.104
you're not bringing in a lot of investors.
00:30:05.104 --> 00:30:06.624
You don't need separate share classes.
00:30:07.163 --> 00:30:16.604
it's, it's rare outside of very specific situations that you're going to see practices owned at C corporations, or if you're an independent contractor, that's even going to be more rare.
00:30:17.213 --> 00:30:20.453
So a C corporation is going to have that double taxation.
00:30:20.824 --> 00:30:24.943
So that's a general overview of how these different entities work.
00:30:25.703 --> 00:30:30.634
The general overview of how they're taxed, especially from a federal taxation standpoint.
00:30:30.644 --> 00:30:34.134
Again, every state is going to have its own specifics.
00:30:34.713 --> 00:30:36.193
So it's really important.
00:30:36.193 --> 00:30:42.733
I mean, it's critically important for you to talk with your specific professionals, to see what decision makes sense for you.
00:30:43.713 --> 00:30:47.683
As you're thinking through that, as you're thinking about, okay, what entity makes sense for me?
00:30:48.314 --> 00:30:50.743
Does it make sense for me to change entities?
00:30:51.003 --> 00:30:52.253
How does that work?
00:30:52.663 --> 00:30:56.124
here are some, some different considerations for you to keep in mind.
00:30:56.544 --> 00:30:59.673
Number one is there's tax considerations, which we've been talking a whole lot about.
00:31:00.413 --> 00:31:01.733
How is the business taxed?
00:31:02.098 --> 00:31:04.788
and by extension, how are you going to be taxed as the owner?
00:31:05.479 --> 00:31:12.138
how are you going to pay yourself and how do taxes fit within that additional state and local taxes that come with that?
00:31:12.449 --> 00:31:20.868
is your state going to have a certain fee just to keep and maintain that, that business, the need for tax flexibility as your business grows?
00:31:21.328 --> 00:31:24.798
what are the costs for filing additional extra tax returns?
00:31:24.798 --> 00:31:27.288
So there's some tax considerations to keep in mind.
00:31:28.173 --> 00:31:30.614
Number two, there's going to be some non tax considerations.
00:31:30.614 --> 00:31:36.604
So for example, some states don't allow optometry practices to be owned or formed as LLCs.
00:31:36.614 --> 00:31:38.884
So you're going to have to go a different direction there.
00:31:39.473 --> 00:31:44.723
there's also certain legal and compliance requirements to open and maintain that type of property.
00:31:44.723 --> 00:31:45.894
Certain entity.
00:31:46.013 --> 00:31:48.923
Maybe there's corporate bylaws, corporate minutes, whatever it may be.
00:31:49.554 --> 00:31:52.673
how is payroll gonna be hand handled in the different entities?
00:31:52.913 --> 00:31:57.884
Are there gonna be additional headaches that come from opening and operating that specific entity?
00:31:58.663 --> 00:32:00.284
Those are some things you're gonna wanna think about.
00:32:00.874 --> 00:32:03.509
do you plan to bring on investors or co-owners?
00:32:03.509 --> 00:32:07.818
Do you plan to allow associates to, to buy into the practice?
00:32:08.159 --> 00:32:12.808
do you plan to have separate entities, layered entities in order to, to work around that?
00:32:12.808 --> 00:32:13.138
So.
00:32:13.493 --> 00:32:15.653
There's some non tax considerations too.
00:32:16.114 --> 00:32:17.663
And then lastly, liability.
00:32:17.973 --> 00:32:34.344
There's liability considerations, which is one of the most important reasons you would open a separate business entity outside of yourself is to protect your, yourself and your personal net worth from what can go wrong or happen, even if accidentally over the course of your business.
00:32:35.294 --> 00:32:37.023
Those are some things for you to keep in mind.
00:32:37.394 --> 00:32:41.683
Hopefully this was helpful for you to wrap your, at least start to wrap your brain around.
00:32:41.683 --> 00:32:41.743
Thank you.
00:32:42.413 --> 00:32:44.493
How these different business types work.
00:32:45.183 --> 00:32:54.933
there's a lot of really simplistic, even if it's accurate, tax advice out there that you're going to find on the internet, on social media.
00:32:55.493 --> 00:32:56.894
So just be aware of that.
00:32:56.903 --> 00:32:59.294
There is no one size fits all for everybody.
00:32:59.374 --> 00:33:00.423
There, there just isn't.
00:33:00.824 --> 00:33:02.878
Even again, if you're deciding, Hey, should I.
00:33:03.969 --> 00:33:06.868
I have an LLC, should I choose to be taxed as an S corporation?
00:33:06.868 --> 00:33:13.479
Like there is no one size fits all, there's rules of thumb, but it really comes down to running the math for your particular situation.
00:33:13.888 --> 00:33:16.249
What are your state taxes and requirements?
00:33:16.558 --> 00:33:19.499
And what is the, where do you see your business going?
00:33:20.019 --> 00:33:21.838
How, how might it grow into the future?
00:33:21.838 --> 00:33:23.528
And what's the right decision for you?
00:33:24.108 --> 00:33:26.138
And again, don't take this as advice.
00:33:26.338 --> 00:33:31.919
You need to keep in mind and talk with your legal, your tax professional, whether it's a CPA.
00:33:32.388 --> 00:33:35.719
or an enrolled agent in EA and your financial advisor.
00:33:35.808 --> 00:33:37.189
Everyone needs to be involved here.
00:33:37.949 --> 00:33:43.114
so if you have any questions on all this, I know I, I barely scratched the surface here.
00:33:43.693 --> 00:33:48.693
If you have any questions on how any of this works and how it might apply to you, reach out.
00:33:48.773 --> 00:33:52.874
You can send me an email at evon, E V O N at optometrywealth.
00:33:52.874 --> 00:33:53.284
com.
00:33:53.713 --> 00:33:55.594
you can go to my website, optometrywealth.
00:33:55.634 --> 00:33:56.034
com.
00:33:56.223 --> 00:34:02.223
you can check out all the resources and show notes for this episode at the education there on my website.
00:34:02.544 --> 00:34:05.334
And you can also schedule a no commitment introductory call.
00:34:05.344 --> 00:34:07.763
And we can talk about how all of this works.
00:34:07.784 --> 00:34:09.143
Cause I, I love talking about it.
00:34:09.143 --> 00:34:10.523
I can talk about it all day.
00:34:10.929 --> 00:34:13.978
I mean, there's things like bookkeeping, which you didn't even get into and, and cash.
00:34:14.039 --> 00:34:17.268
And so there's, there's so much on the business side that goes into it.
00:34:17.268 --> 00:34:18.909
And I, and I just, I love it.
00:34:19.199 --> 00:34:20.869
I'm happy to talk all about it.
00:34:21.128 --> 00:34:32.298
if you want to talk about more about whatever's on your mind financially and learn more about how I serve optometrists about this stuff and, and every aspect of their finances, nationwide.
00:34:32.619 --> 00:34:35.079
Feel free to schedule a time to chat and, and would love to do that.
00:34:35.079 --> 00:34:37.009
So, hopefully you enjoyed it.
00:34:37.369 --> 00:34:39.438
Thank you so much for your time and your energy.
00:34:39.768 --> 00:34:43.849
If you made it to the end of this episode, kudos to you and hopefully we'll catch you.
00:34:43.853 --> 00:34:48.829
On the next episode, we'll talk about the QBI deduction and I've got a, a, a lineup of really great guests.
00:34:49.079 --> 00:34:50.159
I think you're really gonna enjoy.
00:34:50.219 --> 00:34:51.998
So, so we'll catch you next time.
00:34:51.998 --> 00:35:01.309
In the meantime, take care for resources to help master your money, check out the Education Hub on Yvonne's website@optometrywealth.com.
00:35:01.583 --> 00:35:08.153
Evon Mendrin is a certified financial planner and owner of Optometry Wealth Advisors, a California registered investment advisor.
00:35:08.664 --> 00:35:10.733
All opinions of Evon and his guests are their own.
00:35:10.963 --> 00:35:17.123
This show is for informational purposes only and should not be relied on for specific investment, legal, tax, or other decisions.
00:35:17.753 --> 00:35:20.434
Clients of OWA may own securities mentioned on this show.
00:00:00.000 --> 00:00:00.479
Hey everybody.
00:00:00.479 --> 00:00:08.279
Thanks for listening today with the tax season and what the start of my firm's season to start to review tax returns for clients.
00:00:08.345 --> 00:00:15.512
I wanted to throw back and rewind to a popular 2023 episode all about differences between business entities.
00:00:15.615 --> 00:00:18.364
And we'll be back next week with brand new episodes.
00:00:18.364 --> 00:00:19.565
So hopefully we'll catch you then.
00:00:19.599 --> 00:00:25.868
And if you'd like to submit a question to be answered on our next listener Q&A episode, we're still taking questions for the next episode.
00:00:25.868 --> 00:00:35.088
You can head on over to Optometrywealth.com/podcastquestion, or you can use the link in the show notes and submit your questions there.
00:00:35.308 --> 00:00:36.929
In the meantime, enjoy the episode.
00:00:38.048 --> 00:00:50.817
Hey everybody, welcome back to the Optometry Money Podcast, where we're helping ODs all over the country make better and better decisions around their money, their careers, and their practices.
00:00:50.908 --> 00:01:00.637
I am your host, Evon Mendrin, Certified Financial Planner and owner of Optometry Wealth Advisors, an independent financial planning firm just for optometrists nationwide.
00:01:01.338 --> 00:01:07.117
And on today's episode, I'm going to continue our tax series, two episodes ago, episode 47.
00:01:07.537 --> 00:01:18.787
We talked all about on a basic level how income taxes work, how the tax rates work, how your tax is calculated, how withholdings work, mostly from a household level.
00:01:19.188 --> 00:01:22.587
And you can find that just by going to optometrywealth.
00:01:22.628 --> 00:01:24.308
com slash 47.
00:01:24.308 --> 00:01:29.378
And I'll throw a link to that in the show notes as well, but I want to continue this tax theme.
00:01:29.837 --> 00:01:33.207
And from, from this episode, talk all about businesses.
00:01:34.007 --> 00:01:38.018
I want to go through the different business entities that you can select.
00:01:38.447 --> 00:01:54.188
so if you are a practice owner or even an independent contractor, or if you're self employed in any way, I want to go through the different types of business entities that you can select and some of the liability protections with each one, I want to talk a lot about how they're taxed.
00:01:54.768 --> 00:02:00.567
And some considerations at the end for deciding which business entity to choose.
00:02:01.197 --> 00:02:11.837
And I'm not going to go too deep into the legal, aspects of operating these businesses from the legal documentation or too much in depth from the liability standpoint.
00:02:12.377 --> 00:02:14.888
Number one, because this is a tax series, right?
00:02:14.888 --> 00:02:25.008
So I kind of want to keep that focus, but also I think I want to have an attorney on that can talk more generally about asset protection and how these different business entities fit in.
00:02:25.187 --> 00:02:27.668
But we're going to go through a lot today.
00:02:27.997 --> 00:02:37.147
And business taxation, or just trying to make sense of all these different business types, it can be pretty complicated for, for a lot of reasons.
00:02:37.568 --> 00:02:39.927
There's a lot of rules and details and nuances.
00:02:40.453 --> 00:02:41.453
with each entity.
00:02:41.752 --> 00:02:47.223
And there's a lot of nuances and rules, not only with each entity, but with each state.
00:02:47.432 --> 00:02:53.872
So there's a lot of differences on how each state is going to recognize or tax all these different business types.
00:02:54.282 --> 00:03:02.372
but there's also a difference between the legal entity that you own and the way it's taxed, which can confuse people, I think.
00:03:02.413 --> 00:03:09.462
So this is really a place where legal, tax and financial expertise all come together.
00:03:09.862 --> 00:03:18.193
So this is going to be a general basic overview of the differences between each business type, mostly from a federal tax level.
00:03:18.883 --> 00:03:32.182
but this is definitely a place where you want to talk with your whole, for whole professional team, not just tax, not just financial advisor, but an attorney that knows business as well and get some input from your, your whole professional team.
00:03:32.418 --> 00:03:37.418
So let's dive in here and when you think about the taxation of businesses.
00:03:37.777 --> 00:03:39.557
and business entities and business types.
00:03:39.858 --> 00:03:44.687
There's two categories or two buckets of, of taxation for businesses.
00:03:44.957 --> 00:03:48.358
On the one hand, you have pass through business entities, right?
00:03:48.358 --> 00:03:51.008
You have one type called pass through businesses.
00:03:51.497 --> 00:03:53.737
And on the other hand, you have C corporations.
00:03:54.217 --> 00:03:58.578
Pass through businesses are, not surprisingly, everything that's not a C corporation.
00:03:59.518 --> 00:04:08.133
And I'm going to go through all the different ones, but the reason that they're called pass through businesses is because those businesses don't pay their own income tax.
00:04:08.663 --> 00:04:12.712
Even if they file a tax return, it's informational.
00:04:13.182 --> 00:04:15.872
The businesses themselves don't pay their own income tax.
00:04:15.893 --> 00:04:25.442
Instead, all of the net income, the profit from that business, passes through to the tax return of the owner, to your tax return.
00:04:26.023 --> 00:04:30.603
And that income is taxed on your tax return at your personal tax rates.
00:04:30.892 --> 00:04:32.892
So there's one layer of taxation.
00:04:33.382 --> 00:04:34.052
All of that.
00:04:34.358 --> 00:04:39.677
Net income just passes through to your tax return and it ends up on, on your personal tax rates.
00:04:40.247 --> 00:04:44.267
a C corp on the other hand, is different and, and we'll talk about that towards the end, how that's different.
00:04:44.273 --> 00:04:44.447
Right.
00:04:44.447 --> 00:04:46.548
So there's two different general categories.
00:04:47.088 --> 00:04:49.997
Let's start with the pass through type businesses.
00:04:49.997 --> 00:04:51.168
What, what do those look like?
00:04:51.528 --> 00:04:54.048
Well, the first one to look at is the sole proprietor.
00:04:55.077 --> 00:05:00.267
The sole proprietorship may be the simplest type of business to set up and maintain.
00:05:00.677 --> 00:05:03.567
Part of which is because there's no actual separate entity.
00:05:03.577 --> 00:05:05.807
It's not its own separate business entity.
00:05:06.158 --> 00:05:10.557
Sole proprietorship is basically you as an individual deciding to do business.
00:05:11.358 --> 00:05:18.778
You might have a doing business ads, you might have a business name, but there's no legal separation between you and your business.
00:05:19.387 --> 00:05:29.387
which leads to some liability issues because you've sort of left yourself open to the liability that might happen within the business.
00:05:29.658 --> 00:05:37.408
And you've opened yourself up to all of your personal net worth, your personal assets, being vulnerable to the business liabilities.
00:05:37.788 --> 00:05:41.648
This is why good insurance coverage is super important if that is you.
00:05:41.978 --> 00:05:45.968
And this is another place where you want to talk to an attorney and say, Okay, here's my business.
00:05:45.968 --> 00:05:46.908
Here's my situation.
00:05:47.288 --> 00:05:50.968
What liability do I really hold and what's the best entity for me?
00:05:51.197 --> 00:05:54.598
Alright, so sole proprietorship, it's the most simplest to maintain.
00:05:55.348 --> 00:05:57.778
There's no legal separation between you and your business.
00:05:57.788 --> 00:05:59.137
There's no separate entity.
00:05:59.702 --> 00:06:07.202
By default, your social security number is sort of your, your EIN, your employer identification number.
00:06:07.622 --> 00:06:11.973
but you can get a separate EIN number, which I think makes sense.
00:06:12.023 --> 00:06:16.242
if you're going to have like a, a solo 401k retirement account, you actually have to.
00:06:16.713 --> 00:06:19.112
So you can get a separate EIN number.
00:06:19.163 --> 00:06:22.663
you can apply at the IRS website, which I'll throw into the show notes.
00:06:23.233 --> 00:06:28.153
And that's really the only place you really want to go to do this, to, to apply for this EIN number.
00:06:28.163 --> 00:06:30.223
It's a, a really straightforward.
00:06:30.244 --> 00:06:41.773
You can sign up for this free EIN now by going to the IRS website.
00:06:49.377 --> 00:06:55.288
on your personal 1040 income tax return, and you're gonna find a Schedule C, right?
00:06:55.288 --> 00:07:01.767
So that's where all of your business information is recorded, and that's how your, your net profit's gonna be, calculated on that form.
00:07:02.177 --> 00:07:10.737
So you'll, you'll pull up your, 1040 personal tax return, one of the line items there in the very beginning, where it lists all of your income, is gonna be business income, your Schedule C income.
00:07:11.697 --> 00:07:36.413
And one thing to know about sole proprietors or self employed, right, whenever you hear the word self employed, it means you're taxed on a Schedule C like this, is not only is their income taxed as all that income ends up on your personal tax return, But there's also self employment tax, which you're going to see on Form SE, Schedule SE.
00:07:37.033 --> 00:07:44.632
and that self employment tax is Social Security and Medicare taxes that you may have seen when you were an employee.
00:07:44.632 --> 00:07:49.692
You would have seen those taken off of your pay stubs, withheld from you from your pay stubs.
00:07:50.353 --> 00:07:56.492
Well, when you're self employed and you're sole proprietor, you're considered both the employee and the employer.
00:07:56.533 --> 00:08:06.473
So you're going to be paying both halves, both sides of that self employment tax, which equals about 15.
00:08:06.473 --> 00:08:07.083
3%.
00:08:07.362 --> 00:08:17.702
Of course, Social Security's only, only goes up to the, Social Security wage base, so may not be on all of your income, but in general, that combined self employment tax rate is 15.
00:08:17.704 --> 00:08:24.653
3%, plus if your income gets to a different level, a certain level, there may be an additional Medicare tax that kicks in.
00:08:24.923 --> 00:08:39.552
And this self employment tax is something I think that surprises people the most, especially when you are a cold start and you're just starting to see practice growth, or you're an independent contractor and you're not used to handling a lot of this on your own, you're used to it being.
00:08:40.033 --> 00:08:43.153
taken out of your, your withholdings from your pay stub.
00:08:43.613 --> 00:08:51.592
this self employment tax I think is something that surprises people as they get to tax time and they say, Oh my goodness, what does this giant tax do?
00:08:52.092 --> 00:08:56.533
So, on a sole proprietor, you have income taxes, you also have a self employment tax.
00:08:57.043 --> 00:09:01.293
You do get a deduction for half of that, half of that self employment tax.
00:09:01.923 --> 00:09:03.873
It's not going to be on your Schedule C, right?
00:09:03.873 --> 00:09:06.484
It won't be listed as one of your, business deductions.
00:09:06.994 --> 00:09:11.634
It will be on the adjustments to your income before your adjusted gross income is calculated.
00:09:12.264 --> 00:09:13.594
So do you get a deduction for that?
00:09:14.244 --> 00:09:19.923
another thing you get as a Schedule C as a sole proprietor is the qualified business income deduction.
00:09:21.469 --> 00:09:30.269
QBI deduction is a 20 percent deduction that pass through businesses get on essentially net operating profit, right?
00:09:30.269 --> 00:09:34.899
So as a Schedule C, as a sole proprietor, that's net self employment income.
00:09:35.198 --> 00:09:40.879
So your revenue minus your, minus your different taxable business expenses.
00:09:41.749 --> 00:09:46.739
There's a few adjustments there, but it's essentially a 20 percent deduction on your net income from self employment.
00:09:47.208 --> 00:09:49.808
And that's something you get on that full amount, right?
00:09:49.808 --> 00:09:51.208
So that's something you're eligible for.
00:09:51.469 --> 00:09:58.479
there's also other deductions, for example, self employed retirement accounts, solo 401ks, SEP IRAs, you're eligible for those.
00:09:59.063 --> 00:10:04.984
as well as a health insurance premium deduction, a self employed health insurance premium deduction.
00:10:05.524 --> 00:10:11.844
If you're not on a spouse's plan and you're paying for health insurance out of pocket, that's something to keep in mind as well.
00:10:12.403 --> 00:10:15.953
how do you pay yourself as a sole proprietor?
00:10:16.764 --> 00:10:19.443
Well, there's no wage that you're able to pay yourself, right?
00:10:19.443 --> 00:10:22.764
You're not able to pay yourself a salary or a W 2 wage.
00:10:23.303 --> 00:10:28.634
So you're really just going to distribute dollars out of your business account to your personal household account.
00:10:29.014 --> 00:10:30.384
All right, it's just going to be a distribution.
00:10:30.724 --> 00:10:31.823
what about tax withholding?
00:10:32.163 --> 00:10:34.004
Well, as I mentioned, there's no wage.
00:10:34.124 --> 00:10:35.573
You're not going to have pay stubs.
00:10:35.604 --> 00:10:36.433
There's no payroll.
00:10:36.833 --> 00:10:40.014
So you're going to have to be making quarterly estimated tax payments.
00:10:40.403 --> 00:10:43.474
And those are due in April, June, September, and January.
00:10:44.014 --> 00:10:55.384
If you're married and your spouse is working, you know, you might be able to handle the withholdings on your spouse's paychecks because it's really all about total withholdings in the household on the tax return.
00:10:55.964 --> 00:11:00.384
But from your, just from your business standpoint, that's how you're going to be handling withholdings, right?
00:11:00.384 --> 00:11:05.864
So sole proprietorship, the most simple, opens you up to the full liability of the business.
00:11:06.244 --> 00:11:13.793
You have income taxes, self employment tax on the Schedule C and on the Schedule SE, and then some deductions there for the business.
00:11:14.163 --> 00:11:15.734
Next, let's talk about partnerships.
00:11:16.264 --> 00:11:22.774
Similar to the sole proprietorship, a partnership is more than one person deciding to do business together.
00:11:23.303 --> 00:11:27.114
So just like the sole proprietorship, there's no separate business entity.
00:11:27.793 --> 00:11:30.533
You're still open to the liability of the business.
00:11:30.533 --> 00:11:35.663
And in fact, if you're, if you're all general partners, you're all active partners in the business.
00:11:36.119 --> 00:11:40.568
You may even be liable to the liability of your partner's actions as well.
00:11:40.568 --> 00:11:42.778
So there, there might even be more liability there.
00:11:43.129 --> 00:11:55.948
And I think it's important to say we often, when we talk about optometry practices with more than one owner, we often say partners, but we rarely are talking about the, the legal partnership when we say partners.
00:11:56.099 --> 00:12:01.308
I think when we say partners with optometry practices, often it's just the fact that there's more than one owner.
00:12:01.839 --> 00:12:03.019
It's your co owner.
00:12:03.339 --> 00:12:08.688
And like a sole proprietorship, as I mentioned, there's that liability piece for general partners.
00:12:08.869 --> 00:12:14.918
There's also the self employment tax, but you do also qualify for qualified business income deduction.
00:12:14.958 --> 00:12:15.969
So you get that as well.
00:12:16.578 --> 00:12:23.749
There's also limited partnerships too, where there's a general partner who's actively doing the work, actively involved in the business.
00:12:24.208 --> 00:12:31.269
And then there's limited partners that are really like passive investors and their liability is limited to their investment, right?
00:12:31.269 --> 00:12:33.068
So they do actually have limited liability.
00:12:33.068 --> 00:12:39.629
You're going to see that a lot in, in, real estate investments, for example, you'll see that, so those are limited partnerships.
00:12:40.019 --> 00:12:44.839
With partnerships, they are a highly complicated area of tax law.
00:12:45.293 --> 00:12:52.374
And there's a lot of flexibility with partnerships in terms of how you can allocate income and gains and losses between the different partners.
00:12:52.484 --> 00:12:56.573
They don't have to be based on your specific percentage of ownership.
00:12:57.313 --> 00:13:04.014
You can't pay a wage, a W 2 salary in a partnership as well, but you can take a guaranteed payment.
00:13:04.663 --> 00:13:06.193
which is a similar concept.
00:13:06.573 --> 00:13:12.494
operating agreements are incredibly important in a partnership to spell out all of the details that get involved there.
00:13:12.494 --> 00:13:14.653
So again, talk with your attorney.
00:13:15.043 --> 00:13:22.344
A partnership does file its own tax return, Form 1065, and that is due by today.
00:13:22.364 --> 00:13:31.833
As of the date that this will go live, March 15th, that Form 1065 partnership tax return is due, unless you choose to extend and you've got six months later.
00:13:31.833 --> 00:13:32.053
Bye.
00:13:32.678 --> 00:13:39.458
Once that's filed, you get a Form K 1, which shows you your share of business profit and loss.
00:13:39.938 --> 00:13:42.519
And that's what ends up on your personal tax return.
00:13:42.889 --> 00:13:48.839
So, again, this doesn't pay its own tax, the partnership, even though it does file its own tax return.
00:13:49.399 --> 00:13:54.639
And then you're going to see that information on the K 1 on your Schedule E in your personal tax return.
00:13:54.943 --> 00:14:00.563
So that's a partnership, two or more people, working together, essentially going into a venture together.
00:14:00.833 --> 00:14:05.214
It's not common due to the liability issues, but, but it's available.
00:14:05.774 --> 00:14:08.464
Now I want to talk about actual separate entities, right?
00:14:08.604 --> 00:14:12.453
Separate entities from yourself that are going to provide that liability protection.
00:14:12.923 --> 00:14:19.114
And the first one, which is one of the most common forms of entity type is the Limited Liability Company, the LLC.
00:14:19.573 --> 00:14:23.677
LLCs are not actually a corporation, even though they are a separate entity.
00:14:23.948 --> 00:14:24.938
Entity from yourself.
00:14:25.428 --> 00:14:37.239
they've been around, I think since 1977, and depending on your state, like I mentioned, are one of the more popular entity types because they provide that liability protection that corporations provide.
00:14:38.198 --> 00:14:50.798
But they also have quite a bit of flexibility and they may be simpler to maintain than a corporation due to no requirements for like board of directors or corporate bylaws or, or minutes or things like that.
00:14:51.389 --> 00:14:53.399
So they may, they provide some flexibility.
00:14:53.399 --> 00:14:54.918
They may be simpler to maintain.
00:14:55.798 --> 00:14:58.938
the owners are called members, not shareholders.
00:14:58.938 --> 00:15:05.509
They're called members and they provide limited liability, meaning you have a separate entity from yourself.
00:15:05.913 --> 00:15:10.354
so your liability as the owner is limited to your investment in that business.
00:15:10.354 --> 00:15:14.144
Your personal net worth is not involved in that.
00:15:14.563 --> 00:15:21.124
Of course, when we talk about liability, that's different from your, professional liability as an optometrist.
00:15:21.413 --> 00:15:27.874
You're, of course, going to want to make sure that you're insured from a malpractice insurance or professional liability insurance standpoint.
00:15:28.203 --> 00:15:31.594
But if someone trips and falls in the practice, sues your practice.
00:15:33.953 --> 00:15:46.754
an LLC is going to provide you that limited liability if you are maintaining it appropriately, meaning you are meeting the requirements to maintain this limited liability, the LLC as a separate company.
00:15:46.764 --> 00:15:50.583
You're not co mingling, co mingling your business assets with your personal assets.
00:15:50.583 --> 00:15:54.004
You've got separate bank accounts, separate finances, things like that.
00:15:54.214 --> 00:15:55.953
How are LLCs taxed?
00:15:56.274 --> 00:15:56.524
All right.
00:15:56.533 --> 00:15:58.714
How do we handle the taxation of an LLC?
00:15:59.384 --> 00:16:09.149
This is where it gets interesting because LLCs actually have flexibility in the way that they can be taxed because you can choose the way that you want to be taxed.
00:16:09.259 --> 00:16:10.078
So, let me explain.
00:16:10.538 --> 00:16:15.458
By default, if you are a single owner LLC, right?
00:16:15.458 --> 00:16:21.109
So, a single member LLC, you're considered a disregarded entity.
00:16:21.558 --> 00:16:25.158
What that means is that the IRS ignores your LLC.
00:16:25.864 --> 00:16:29.153
and it's going to tax you basically like your sole proprietorship.
00:16:29.163 --> 00:16:31.484
So the taxation is pretty straightforward.
00:16:32.144 --> 00:16:35.994
it's going to be taxed pretty similar to like you would have been as a sole proprietor.
00:16:36.563 --> 00:16:42.224
So you're going to have a, everything we mentioned about the sole proprietorship applies to this from a federal tax standpoint.
00:16:42.979 --> 00:16:44.469
You'll have a Schedule C.
00:16:44.849 --> 00:16:55.479
You're going to be subject to self employment tax, but you also have the qualified business income deduction to, to take into account, plus the other business deductions and retirement plans available.
00:16:55.818 --> 00:16:59.068
All right, so all those same rules apply from a federal tax standpoint.
00:16:59.688 --> 00:17:04.398
If you have two or more members, you're by default taxed as a partnership.
00:17:04.398 --> 00:17:06.888
So all the partnership rules will apply from the tax standpoint.
00:17:07.509 --> 00:17:15.124
So I guess it's important first to realize that Unless certain decisions are made, the LLC is not going to save you taxes.
00:17:16.108 --> 00:17:20.749
You're going to be taxed basically the same as if you would have been if you are a sole proprietor.
00:17:21.419 --> 00:17:24.568
But it's initially going to be about liability protection.
00:17:24.578 --> 00:17:25.828
And that's what's important here, right?
00:17:25.868 --> 00:17:32.189
Again, all of those different expertise and disciplines and topics come together here when it comes to business formation.
00:17:32.558 --> 00:17:37.888
So that's by default, a single member LLC is going to be taxed just like a sole proprietorship.
00:17:38.634 --> 00:17:44.013
or if there's two or more members, two or more owners, it's going to be by default taxed as a partnership.
00:17:44.263 --> 00:17:57.473
However, as an LLC can elect or choose to be taxed either as a C Corporation using Form 8832 or as an S Corporation using Form 833.
00:17:57.689 --> 00:18:01.138
2553 and this is where it gets very interesting.
00:18:01.449 --> 00:18:09.509
and I'll talk about how those, the, the taxation of those two are handled next, but you can choose to, when it makes sense, if, or when it makes sense.
00:18:09.919 --> 00:18:29.199
To be taxed differently and you'll submit that, let's say you wanted to make that election, you could submit that, by two months and 15 days or 75 days after the start of your tax year, which would be basically right now, or if you're just starting your entity, if you're just starting your business, 75 days after the start of your business.
00:18:29.199 --> 00:18:34.618
Now, I've seen a lot of examples where people are filing that late retroactively.
00:18:34.919 --> 00:18:52.209
and you have to give a reasoning for why you're doing that, so talk with your tax professional if you're wanting to revisit the way that your entity is taxed, but that's where it gets interesting with an LLC is that it provides that liability protection if you're maintaining it correctly and you get some flexibility with deciding how you want to be taxed.
00:18:52.638 --> 00:18:58.489
So LLCs are formed with your state, you're going to get an operating agreement, makes a lot of sense to do that.
00:18:58.828 --> 00:19:01.249
and then you can also get an EIN number with the IRS.
00:19:01.259 --> 00:19:04.979
Once that's open, the states are going to treat this differently, right?
00:19:04.979 --> 00:19:06.348
So this is a big disclaimer here.
00:19:06.739 --> 00:19:19.868
Each state's going to treat this differently and how they tax it, the fees involved to operate it, and whether they're going to acknowledge it or, whether they're going to allow you as an optometry practice to be formed as an LLC.
00:19:19.888 --> 00:19:20.169
Right?
00:19:20.169 --> 00:19:20.499
So.
00:19:21.128 --> 00:19:22.338
talk with your professionals.
00:19:22.338 --> 00:19:24.909
This is going to be the big disclaimer throughout this whole conversation.
00:19:25.038 --> 00:19:35.778
that's something that you're going to see obviously as a, as an optometry practice, if that makes sense to go that route, but also independent contractors tend to get advised to open up an LLC as well.
00:19:36.019 --> 00:19:40.169
not only from a liability standpoint, but also really from a tax planning standpoint.
00:19:40.169 --> 00:19:43.219
And that's where this next entity decision comes in.
00:19:43.894 --> 00:19:45.953
Which leads me to the S Corporation.
00:19:46.703 --> 00:19:51.963
Now the S Corporation is not actually a legal entity that you can go and form.
00:19:52.673 --> 00:19:57.794
You're going to either form an LLC or you're going to incorporate and form a corporation.
00:19:58.394 --> 00:20:03.173
So it's not an actual legal entity that you can form, but it's a tax designation.
00:20:03.473 --> 00:20:07.413
It's a way that you're choosing to be taxed under Subchapter S.
00:20:07.874 --> 00:20:13.823
So really you're going to have an LLC that's choosing to be taxed as an S Corporation, or you're going to have a corporation.
00:20:14.733 --> 00:20:16.683
It's going to be taxed as an S corporation.
00:20:17.253 --> 00:20:23.134
Whenever we say we own an S corporation, that's really what we mean, is we own a business that's choosing to be taxed in that way.
00:20:23.953 --> 00:20:31.354
And one of the main benefits of choosing to be taxed as an S corporation is number one, you have, it's a pass through entity, right?
00:20:31.354 --> 00:20:38.064
So you have a single layer of taxation, but you also, potentially save taxes on self employment taxes.
00:20:38.574 --> 00:20:41.304
So those are some of the main benefits to using an S corporation.
00:20:41.314 --> 00:20:43.463
And there are some requirements.
00:20:43.773 --> 00:20:47.423
So number one, you have to be a domestic entity, a domestic corporation.
00:20:48.034 --> 00:20:52.294
You can only be owned by individuals, or certain trusts in the States.
00:20:52.304 --> 00:20:55.044
So you can't be owned by partnerships or corporations.
00:20:55.884 --> 00:21:00.064
It can't have more than 100 shareholders and you can only have one class of stocks.
00:21:00.064 --> 00:21:02.544
You can't have a voting class and a non voting class.
00:21:02.943 --> 00:21:06.084
All of those should be pretty easy to meet as an optometry practice, right?
00:21:06.084 --> 00:21:08.233
So, nothing really to stress about there.
00:21:09.233 --> 00:21:15.634
As the owner of an S Corporation, you are both An employee and an employer.
00:21:16.314 --> 00:21:27.304
So because you are an employee, there is a requirement, not an option, a requirement to pay yourself a reasonable W 2 wage in the business.
00:21:28.064 --> 00:21:33.713
And the first dollars out of that business to yourself have to be meeting that reasonable wage.
00:21:34.364 --> 00:21:44.009
I've seen a lot of examples and had too many conversations where That reasonable wage was 30, 000 for an optometrist working full time in their own practice.
00:21:44.409 --> 00:21:48.729
Clearly that is under what you would expect to be paid as an optometrist, right?
00:21:48.729 --> 00:21:50.759
So you do need to pay yourself a reasonable wage.
00:21:51.288 --> 00:21:53.648
The IRS has some guidelines around what that means.
00:21:53.699 --> 00:22:03.729
I mean, reality, when you boil it down, it's what would you pay someone else to do your exact work with similar experience to do the same work that you're doing in the practice as an optometrist?
00:22:04.213 --> 00:22:06.564
as a manager, as an administrator, right?
00:22:06.743 --> 00:22:09.064
So what would you have to pay yourself to do that?
00:22:09.324 --> 00:22:16.249
It's reasonable, and because you have this requirement to pay yourself a reasonable wage, You're going to have payroll, right?
00:22:16.249 --> 00:22:18.199
So you need to be running payroll throughout the year.
00:22:18.659 --> 00:22:36.189
you can also handle federal state, employment tax withholdings through that payroll, just like you would have been if you're working somewhere else, the retirement account contributions have to be your employee amount has to be withheld through your pay stubs, just like it would be if you're working somewhere else.
00:22:36.509 --> 00:22:36.739
And.
00:22:37.028 --> 00:22:44.028
For an S corporation, for an S corp, you do need to pay employment taxes on your wages.
00:22:44.118 --> 00:22:50.298
So, Social Security, up to that wage base, I think is around 160, 000 in 2023.
00:22:50.689 --> 00:22:58.608
So, Social Security taxes up to the wage base, plus Medicare taxes, plus the extra Medicare tax, the additional Medicare tax, if your income is high enough.
00:22:59.159 --> 00:23:06.808
So, with an S corporation, you have to pay yourself, on the one hand, a reasonable wage, and on the other hand, everything that's left is profit, is net income.
00:23:08.118 --> 00:23:12.989
On net income, on profit, there is no self employment tax.
00:23:13.544 --> 00:23:17.683
There is no social security tax and there's no Medicare tax on that income.
00:23:18.344 --> 00:23:19.713
Only income tax.
00:23:20.483 --> 00:23:23.144
That is really where your tax savings comes in.
00:23:23.544 --> 00:23:26.044
so for example, let me give you an example here.
00:23:26.044 --> 00:23:28.513
Let's say you, your owner's net, right?
00:23:28.513 --> 00:23:39.023
So you're, you're optometry practice after you have your revenue coming in, collected, you pay for all your, your operational expenses and you're left with 150, 000, right?
00:23:39.054 --> 00:23:40.814
That's sort of your total owner's net.
00:23:41.564 --> 00:23:44.773
And let's say you paid yourself a 100, 000 wage throughout the year.
00:23:44.784 --> 00:23:46.993
That means you have a 50, 000 profit.
00:23:47.743 --> 00:23:54.354
On that 100, 000 wage, you would have had to, handle social security taxes and Medicare taxes, right?
00:23:54.364 --> 00:23:59.653
All of the usual employment taxes, including the state and local, are going to be handled on that wage.
00:23:59.713 --> 00:24:00.983
They're going to be assessed on that wage.
00:24:01.503 --> 00:24:04.854
However, you do not have those on your 50, 000 profit.
00:24:05.163 --> 00:24:10.263
So for example, if the, if the self employment tax was about 15.
00:24:10.263 --> 00:24:24.564
3%, you would be saving somewhere around 7, 000 of self employment tax by switching to an S corporation versus simply being taxed as a, single member, single member LLC on a Schedule C.
00:24:25.304 --> 00:24:27.673
So that's where that tax saving is going to come in.
00:24:29.743 --> 00:24:35.233
That's not the end of the story because there's more that goes into choosing to be taxed as an S corporation.
00:24:36.094 --> 00:24:40.193
Number one, one big difference is the qualified business income deduction.
00:24:41.023 --> 00:24:58.864
I'm going to have a separate episode next, next episode all about the QBI deduction and what goes into that because I think there's enough that enough details in that that it warrants its own, its own conversation, but that QBI deduction, you cannot take that deduction on the wages that you pay yourself.
00:24:59.824 --> 00:25:03.989
You can only take that deduction On the profit of your business.
00:25:04.368 --> 00:25:13.479
so going back to that example, if you had 150, 000 owner's net, a hundred thousand of that was your wage, your W2 wage as an employee.
00:25:14.189 --> 00:25:18.388
That 50, 000 profit is the only thing you can take the QBI deduction on.
00:25:19.098 --> 00:25:26.269
So while you're lowering self employment taxes, you're also potentially dramatically lowering your QBI deduction.
00:25:26.898 --> 00:25:30.128
There's more that goes into this equation than meets the eye.
00:25:30.858 --> 00:25:39.009
And I, I would say that, especially for independent contractors, you know, if you're a private practice owner and you are.
00:25:39.314 --> 00:25:46.903
Successful, your net income is going to get to a point where it probably makes sense, all things considering to, to elect an S corp, status.
00:25:47.094 --> 00:25:50.773
It may not be right away if you're cold starting, but at some point you likely will be there.
00:25:51.193 --> 00:26:03.723
However, if you're an independent contractor, you may be advised to, when your income gets to a certain point, to open an LLC and choose to be taxed as an S corporation.
00:26:03.763 --> 00:26:09.683
And I just want you to think really carefully about that because it's not just about these self employment taxes that you might save.
00:26:10.358 --> 00:26:13.489
You also need to consider that 20 percent QBI deduction.
00:26:14.148 --> 00:26:22.308
you also need to consider the headaches and costs of filing a separate tax return, of having payroll.
00:26:22.318 --> 00:26:23.689
Now you have to handle payroll.
00:26:23.979 --> 00:26:29.108
you have to handle your 401k contributions differently because you have to do it through payroll as well.
00:26:29.624 --> 00:26:39.993
So you have to keep in mind all of the additional costs and headaches that go into, operating as an S corporation that you may not have had when you were just a, an LLC.
00:26:40.463 --> 00:26:42.284
So there's a lot more to keep in mind.
00:26:42.993 --> 00:26:45.953
An S corporation does file its own tax return.
00:26:45.993 --> 00:26:52.763
Again, it does not pay its own tax, but it does file its own tax return due at the same time as your partnership returns March 15th.
00:26:52.844 --> 00:26:55.374
Today, that's the 1120S.
00:26:56.223 --> 00:27:05.384
Once that's filed, similar to a partnership, you're going to get a K 1 and you're going to see your share of the net profit from that business on your Schedule E.
00:27:05.983 --> 00:27:14.713
Remember, pass through business entities, their net income is automatically going to be passed through to your personal tax return, right?
00:27:14.713 --> 00:27:21.844
So the profit is going to pass through and end up on your tax return and it's already going to be taxed.
00:27:22.134 --> 00:27:29.634
regardless and totally separate from whether you keep that profit in your business bank account or whether you distribute it to yourself.
00:27:29.854 --> 00:27:32.544
Distributing it to yourself does not cause it to be taxed.
00:27:32.564 --> 00:27:38.673
That profit's already either been taxed in past tax years or it's going to be taxed in that current year, right?
00:27:39.074 --> 00:27:43.054
It's totally unrelated from whether you keep it in the business bank account.
00:27:43.203 --> 00:27:47.983
Now distributing profit out of your business does impact other things.
00:27:48.003 --> 00:27:51.913
It impacts, for example, the cost basis in your practice.
00:27:52.683 --> 00:27:54.743
That's a conversation for another episode.
00:27:55.523 --> 00:27:57.824
So there's other things that it's going to affect.
00:27:57.834 --> 00:28:05.763
So you do want to talk with your advisors, your tax pro, your financial advisor, to plan around how you're going to pay yourself and how you're going to distribute.
00:28:06.659 --> 00:28:10.308
But it's, it's unrelated from the income tax itself.
00:28:10.868 --> 00:28:16.048
And, what it really comes down to is how are you planning to use the extra cash flow in your practice?
00:28:16.439 --> 00:28:36.469
After you've paid for your core operating expenses, after you've set aside money for taxes, been able to make your minimum debt payments, after you've set aside enough for a savings amount within the practice, or planning for anticipated investments in the practice, After you've started to tackle those things, where do you plan to take and use that cash flow?
00:28:36.989 --> 00:28:43.009
Whether it's in the household, investing, whether it's paying off debt, whatever that may be, whether it's improving your life, right?
00:28:43.009 --> 00:28:44.548
What is your plan for that cash flow?
00:28:45.038 --> 00:28:46.459
So just something to keep in mind there.
00:28:46.838 --> 00:28:52.128
Distributing cash out of your practice is not going to cause additional income tax.
00:28:52.949 --> 00:28:56.199
It's going to impact other things, but not that income tax.
00:28:56.969 --> 00:29:00.108
I think where that comes from is what I'm going to talk about next.
00:29:00.568 --> 00:29:01.979
are C corporations.
00:29:02.888 --> 00:29:06.419
C corporations, as I mentioned earlier, are not pass through businesses.
00:29:07.028 --> 00:29:21.568
C corporations have double taxation because a C corporation, just like you would see if you purchased XYZ publicly traded stock, a C corporation pays its own tax at the corporate level.
00:29:22.038 --> 00:29:26.128
there's a flat 21 percent tax rate as of right now, as of recording.
00:29:26.638 --> 00:29:29.078
so it's going to pay its own tax on profit.
00:29:29.624 --> 00:29:30.723
at the business level.
00:29:31.344 --> 00:29:38.973
And then if you distribute dividends to yourself as the owner, those dividends are taxed again on your personal tax return, right?
00:29:38.973 --> 00:29:41.183
So there's two layers of taxation there.
00:29:41.604 --> 00:29:48.273
you do get to take advantage of certain fringe benefits that you wouldn't get to as a pass through business owner, like an S corporation owner.
00:29:48.594 --> 00:29:58.203
but again, because of that double taxation, a business like optometry, an optometry practice where most of that profit is going to be distributed to the owner anyways.
00:29:58.693 --> 00:30:02.983
There's not substantial reinvestment back into the practice for massive growth.
00:30:03.354 --> 00:30:05.104
you're not bringing in a lot of investors.
00:30:05.104 --> 00:30:06.624
You don't need separate share classes.
00:30:07.163 --> 00:30:16.604
it's, it's rare outside of very specific situations that you're going to see practices owned at C corporations, or if you're an independent contractor, that's even going to be more rare.
00:30:17.213 --> 00:30:20.453
So a C corporation is going to have that double taxation.
00:30:20.824 --> 00:30:24.943
So that's a general overview of how these different entities work.
00:30:25.703 --> 00:30:30.634
The general overview of how they're taxed, especially from a federal taxation standpoint.
00:30:30.644 --> 00:30:34.134
Again, every state is going to have its own specifics.
00:30:34.713 --> 00:30:36.193
So it's really important.
00:30:36.193 --> 00:30:42.733
I mean, it's critically important for you to talk with your specific professionals, to see what decision makes sense for you.
00:30:43.713 --> 00:30:47.683
As you're thinking through that, as you're thinking about, okay, what entity makes sense for me?
00:30:48.314 --> 00:30:50.743
Does it make sense for me to change entities?
00:30:51.003 --> 00:30:52.253
How does that work?
00:30:52.663 --> 00:30:56.124
here are some, some different considerations for you to keep in mind.
00:30:56.544 --> 00:30:59.673
Number one is there's tax considerations, which we've been talking a whole lot about.
00:31:00.413 --> 00:31:01.733
How is the business taxed?
00:31:02.098 --> 00:31:04.788
and by extension, how are you going to be taxed as the owner?
00:31:05.479 --> 00:31:12.138
how are you going to pay yourself and how do taxes fit within that additional state and local taxes that come with that?
00:31:12.449 --> 00:31:20.868
is your state going to have a certain fee just to keep and maintain that, that business, the need for tax flexibility as your business grows?
00:31:21.328 --> 00:31:24.798
what are the costs for filing additional extra tax returns?
00:31:24.798 --> 00:31:27.288
So there's some tax considerations to keep in mind.
00:31:28.173 --> 00:31:30.614
Number two, there's going to be some non tax considerations.
00:31:30.614 --> 00:31:36.604
So for example, some states don't allow optometry practices to be owned or formed as LLCs.
00:31:36.614 --> 00:31:38.884
So you're going to have to go a different direction there.
00:31:39.473 --> 00:31:44.723
there's also certain legal and compliance requirements to open and maintain that type of property.
00:31:44.723 --> 00:31:45.894
Certain entity.
00:31:46.013 --> 00:31:48.923
Maybe there's corporate bylaws, corporate minutes, whatever it may be.
00:31:49.554 --> 00:31:52.673
how is payroll gonna be hand handled in the different entities?
00:31:52.913 --> 00:31:57.884
Are there gonna be additional headaches that come from opening and operating that specific entity?
00:31:58.663 --> 00:32:00.284
Those are some things you're gonna wanna think about.
00:32:00.874 --> 00:32:03.509
do you plan to bring on investors or co-owners?
00:32:03.509 --> 00:32:07.818
Do you plan to allow associates to, to buy into the practice?
00:32:08.159 --> 00:32:12.808
do you plan to have separate entities, layered entities in order to, to work around that?
00:32:12.808 --> 00:32:13.138
So.
00:32:13.493 --> 00:32:15.653
There's some non tax considerations too.
00:32:16.114 --> 00:32:17.663
And then lastly, liability.
00:32:17.973 --> 00:32:34.344
There's liability considerations, which is one of the most important reasons you would open a separate business entity outside of yourself is to protect your, yourself and your personal net worth from what can go wrong or happen, even if accidentally over the course of your business.
00:32:35.294 --> 00:32:37.023
Those are some things for you to keep in mind.
00:32:37.394 --> 00:32:41.683
Hopefully this was helpful for you to wrap your, at least start to wrap your brain around.
00:32:41.683 --> 00:32:41.743
Thank you.
00:32:42.413 --> 00:32:44.493
How these different business types work.
00:32:45.183 --> 00:32:54.933
there's a lot of really simplistic, even if it's accurate, tax advice out there that you're going to find on the internet, on social media.
00:32:55.493 --> 00:32:56.894
So just be aware of that.
00:32:56.903 --> 00:32:59.294
There is no one size fits all for everybody.
00:32:59.374 --> 00:33:00.423
There, there just isn't.
00:33:00.824 --> 00:33:02.878
Even again, if you're deciding, Hey, should I.
00:33:03.969 --> 00:33:06.868
I have an LLC, should I choose to be taxed as an S corporation?
00:33:06.868 --> 00:33:13.479
Like there is no one size fits all, there's rules of thumb, but it really comes down to running the math for your particular situation.
00:33:13.888 --> 00:33:16.249
What are your state taxes and requirements?
00:33:16.558 --> 00:33:19.499
And what is the, where do you see your business going?
00:33:20.019 --> 00:33:21.838
How, how might it grow into the future?
00:33:21.838 --> 00:33:23.528
And what's the right decision for you?
00:33:24.108 --> 00:33:26.138
And again, don't take this as advice.
00:33:26.338 --> 00:33:31.919
You need to keep in mind and talk with your legal, your tax professional, whether it's a CPA.
00:33:32.388 --> 00:33:35.719
or an enrolled agent in EA and your financial advisor.
00:33:35.808 --> 00:33:37.189
Everyone needs to be involved here.
00:33:37.949 --> 00:33:43.114
so if you have any questions on all this, I know I, I barely scratched the surface here.
00:33:43.693 --> 00:33:48.693
If you have any questions on how any of this works and how it might apply to you, reach out.
00:33:48.773 --> 00:33:52.874
You can send me an email at evon, E V O N at optometrywealth.
00:33:52.874 --> 00:33:53.284
com.
00:33:53.713 --> 00:33:55.594
you can go to my website, optometrywealth.
00:33:55.634 --> 00:33:56.034
com.
00:33:56.223 --> 00:34:02.223
you can check out all the resources and show notes for this episode at the education there on my website.
00:34:02.544 --> 00:34:05.334
And you can also schedule a no commitment introductory call.
00:34:05.344 --> 00:34:07.763
And we can talk about how all of this works.
00:34:07.784 --> 00:34:09.143
Cause I, I love talking about it.
00:34:09.143 --> 00:34:10.523
I can talk about it all day.
00:34:10.929 --> 00:34:13.978
I mean, there's things like bookkeeping, which you didn't even get into and, and cash.
00:34:14.039 --> 00:34:17.268
And so there's, there's so much on the business side that goes into it.
00:34:17.268 --> 00:34:18.909
And I, and I just, I love it.
00:34:19.199 --> 00:34:20.869
I'm happy to talk all about it.
00:34:21.128 --> 00:34:32.298
if you want to talk about more about whatever's on your mind financially and learn more about how I serve optometrists about this stuff and, and every aspect of their finances, nationwide.
00:34:32.619 --> 00:34:35.079
Feel free to schedule a time to chat and, and would love to do that.
00:34:35.079 --> 00:34:37.009
So, hopefully you enjoyed it.
00:34:37.369 --> 00:34:39.438
Thank you so much for your time and your energy.
00:34:39.768 --> 00:34:43.849
If you made it to the end of this episode, kudos to you and hopefully we'll catch you.
00:34:43.853 --> 00:34:48.829
On the next episode, we'll talk about the QBI deduction and I've got a, a, a lineup of really great guests.
00:34:49.079 --> 00:34:50.159
I think you're really gonna enjoy.
00:34:50.219 --> 00:34:51.998
So, so we'll catch you next time.
00:34:51.998 --> 00:35:01.309
In the meantime, take care for resources to help master your money, check out the Education Hub on Yvonne's website@optometrywealth.com.
00:35:01.583 --> 00:35:08.153
Evon Mendrin is a certified financial planner and owner of Optometry Wealth Advisors, a California registered investment advisor.
00:35:08.664 --> 00:35:10.733
All opinions of Evon and his guests are their own.
00:35:10.963 --> 00:35:17.123
This show is for informational purposes only and should not be relied on for specific investment, legal, tax, or other decisions.
00:35:17.753 --> 00:35:20.434
Clients of OWA may own securities mentioned on this show.
