{"version":"1.0.0","segments":[{"startTime":5.66,"endTime":6.83,"body":"hello and welcome."},{"startTime":6.83,"endTime":8.0,"body":"You're tuned into taxes."},{"startTime":8.0,"endTime":10.82,"body":"Made simple for a speed"},{"startTime":8.0,"endTime":10.82,"body":"round on S corporations."},{"startTime":11.12,"endTime":15.47,"body":"My name is chase Berkey, CEO of dark"},{"startTime":11.12,"endTime":15.47,"body":"CPAs, and I'm joined by Colorado's"},{"startTime":15.47,"endTime":20.03,"body":"very own Eric KCStat who runs a dark"},{"startTime":15.47,"endTime":20.03,"body":"horse CPA practice in Fort Collins."},{"startTime":20.43,"endTime":23.67,"body":"You may remember him from our conversation"},{"startTime":20.43,"endTime":23.67,"body":"on entity selection, which was the"},{"startTime":23.67,"endTime":25.56,"body":"second episode we did for the podcast."},{"startTime":25.95,"endTime":29.04,"body":"So what we decided to do on this"},{"startTime":25.95,"endTime":29.04,"body":"episode was create a speed round"},{"startTime":29.04,"endTime":33.15,"body":"series on entity selection to break"},{"startTime":29.04,"endTime":33.15,"body":"down each of the major entity types,"},{"startTime":33.15,"endTime":37.35,"body":"to give you a little more depth on the"},{"startTime":33.15,"endTime":37.35,"body":"advantages and disadvantages of each."},{"startTime":37.89,"endTime":41.37,"body":"So, as I mentioned before, this episode"},{"startTime":37.89,"endTime":41.37,"body":"is going to be on S corporations."},{"startTime":41.85,"endTime":44.55,"body":"Eric, welcome back to the show"},{"startTime":41.85,"endTime":44.55,"body":"and thanks for being here."},{"startTime":45.66,"endTime":46.53,"body":"Thanks for having me."},{"startTime":46.62,"endTime":49.74,"body":"I'm happy to be back and excited"},{"startTime":46.62,"endTime":49.74,"body":"to take a quick dive into"},{"startTime":49.74,"endTime":51.39,"body":"the world of S corporations."},{"startTime":51.83,"endTime":52.31,"body":"Awesome."},{"startTime":52.31,"endTime":56.36,"body":"Well, as we do on this show, it's time"},{"startTime":52.31,"endTime":56.36,"body":"for you to show me your cup of coffee"},{"startTime":56.54,"endTime":57.53,"body":"and let me know what you're drinking."},{"startTime":58.88,"endTime":61.31,"body":"Well, this is just your basic Americano."},{"startTime":61.76,"endTime":64.61,"body":"Um, no cream, no sugar,"},{"startTime":61.76,"endTime":64.61,"body":"just straight to the point."},{"startTime":64.61,"endTime":66.83,"body":"Like I intend to be with"},{"startTime":64.61,"endTime":66.83,"body":"our discussion today."},{"startTime":67.485,"endTime":69.975,"body":"Mm, sounds more tasty."},{"startTime":70.485,"endTime":72.705,"body":"Well, let's start the"},{"startTime":70.485,"endTime":72.705,"body":"clock for five minutes."},{"startTime":73.214,"endTime":73.664,"body":"Eric."},{"startTime":73.845,"endTime":75.945,"body":"Tell us what an S-corporation is."},{"startTime":76.89,"endTime":80.82,"body":"I'm actually going to flip this one"},{"startTime":76.89,"endTime":80.82,"body":"around and tell you what it's not, because"},{"startTime":80.82,"endTime":82.649,"body":"it's easier to understand this way."},{"startTime":83.34,"endTime":86.49,"body":"You did not form an S corporation"},{"startTime":83.34,"endTime":86.49,"body":"with your secretary of state."},{"startTime":86.789,"endTime":91.199,"body":"You either form an LLC or a corporation"},{"startTime":86.789,"endTime":91.199,"body":"and then make the S election."},{"startTime":91.94,"endTime":95.69,"body":"Well, you probably just blew some of our"},{"startTime":91.94,"endTime":95.69,"body":"listeners minds right off the bat there,"},{"startTime":95.99,"endTime":98.21,"body":"but what do you mean by an S election?"},{"startTime":99.15,"endTime":103.59,"body":"You file a form with the IRS to"},{"startTime":99.15,"endTime":103.59,"body":"elect for that LLC or corporation"},{"startTime":103.59,"endTime":105.78,"body":"to be taxed as an S-corporation."},{"startTime":106.23,"endTime":109.65,"body":"It's just a tax designation,"},{"startTime":106.23,"endTime":109.65,"body":"not a type of legal entity."},{"startTime":110.28,"endTime":113.61,"body":"You're still an LLC or a Corp,"},{"startTime":110.28,"endTime":113.61,"body":"depending on which you formed"},{"startTime":113.61,"endTime":115.08,"body":"with your state of incorporation."},{"startTime":115.91,"endTime":119.78,"body":"Well, the natural follow-up question"},{"startTime":115.91,"endTime":119.78,"body":"then is why would you do this?"},{"startTime":120.84,"endTime":124.62,"body":"As corporations enjoy certain tax"},{"startTime":120.84,"endTime":124.62,"body":"benefits as compared to other entity"},{"startTime":124.62,"endTime":129.21,"body":"types, like a partnership or LLC,"},{"startTime":124.62,"endTime":129.21,"body":"you only have one level of tax."},{"startTime":129.54,"endTime":133.71,"body":"Since the income flows through to"},{"startTime":129.54,"endTime":133.71,"body":"the owners, by the percentages, this"},{"startTime":133.71,"endTime":137.22,"body":"would be an advantage against a C"},{"startTime":133.71,"endTime":137.22,"body":"corporation that pays tax at the"},{"startTime":137.22,"endTime":139.56,"body":"entity level and the shareholder level."},{"startTime":140.16,"endTime":141.18,"body":"Unlike a partnership."},{"startTime":141.21,"endTime":144.99,"body":"However, the income that flows through"},{"startTime":141.21,"endTime":144.99,"body":"to you on your K one is not subject"},{"startTime":144.99,"endTime":149.91,"body":"to self-employment tax, which can save"},{"startTime":144.99,"endTime":149.91,"body":"you up to about 15% on that income."},{"startTime":150.615,"endTime":154.395,"body":"So this is the main differentiator"},{"startTime":150.615,"endTime":154.395,"body":"that leads just about everyone to"},{"startTime":154.395,"endTime":159.675,"body":"think that the S-corporation is the"},{"startTime":154.395,"endTime":159.675,"body":"way to go hands down, but Eric I'm sure"},{"startTime":159.675,"endTime":163.035,"body":"you'd agree that there are many more"},{"startTime":159.675,"endTime":163.035,"body":"considerations at hand here other than"},{"startTime":163.035,"endTime":164.775,"body":"just the self-employment tax issue."},{"startTime":164.835,"endTime":165.135,"body":"Right."},{"startTime":165.99,"endTime":170.79,"body":"100%, one consideration off the top"},{"startTime":165.99,"endTime":170.79,"body":"of my head is that you have to run"},{"startTime":170.79,"endTime":174.93,"body":"payroll, maintain a set of financial"},{"startTime":170.79,"endTime":174.93,"body":"statements and file a separate tax"},{"startTime":174.93,"endTime":178.2,"body":"return, which you don't have to do"},{"startTime":174.93,"endTime":178.2,"body":"when you're a single member LLC."},{"startTime":178.83,"endTime":180.69,"body":"So there's a cost associated with that."},{"startTime":181.47,"endTime":184.95,"body":"Also the payroll that you're required"},{"startTime":181.47,"endTime":184.95,"body":"to run for yourself, which is called"},{"startTime":184.98,"endTime":190.08,"body":"officer compensation, does not"},{"startTime":184.98,"endTime":190.08,"body":"qualify for the 20% QBI deduction."},{"startTime":190.785,"endTime":195.015,"body":"On the other hand, those W2 wages"},{"startTime":190.785,"endTime":195.015,"body":"could unlock some of this 20% QBI"},{"startTime":195.015,"endTime":197.235,"body":"deduction that you'd otherwise forgo."},{"startTime":197.235,"endTime":201.395,"body":"If you were taxed as a partnership, I'm"},{"startTime":197.235,"endTime":201.395,"body":"going to spare our listeners from the"},{"startTime":201.395,"endTime":203.075,"body":"agony of going into further depth there."},{"startTime":203.075,"endTime":207.515,"body":"But I will say it's this sort of nuance"},{"startTime":203.075,"endTime":207.515,"body":"that Eric helps his clients work through"},{"startTime":207.515,"endTime":210.845,"body":"on the daily to make sure they're"},{"startTime":207.515,"endTime":210.845,"body":"being as tax efficient as possible."},{"startTime":211.415,"endTime":214.985,"body":"So let's talk about the restrictions"},{"startTime":211.415,"endTime":214.985,"body":"imposed on S corporations to"},{"startTime":214.985,"endTime":216.365,"body":"maintain their tax status."},{"startTime":217.38,"endTime":218.07,"body":"Absolutely."},{"startTime":218.16,"endTime":223.019,"body":"So you can't have a shareholder that"},{"startTime":218.16,"endTime":223.019,"body":"is an entity or someone who is not"},{"startTime":223.019,"endTime":225.179,"body":"a us citizen or permanent resident."},{"startTime":225.63,"endTime":229.799,"body":"You can't have more than one"},{"startTime":225.63,"endTime":229.799,"body":"class of stock and you can not"},{"startTime":229.799,"endTime":231.78,"body":"have over 100 shareholders."},{"startTime":232.41,"endTime":236.609,"body":"So there are a lot of"},{"startTime":232.41,"endTime":236.609,"body":"restrictions on ownership further."},{"startTime":236.67,"endTime":240.779,"body":"These owners, at least the ones that"},{"startTime":236.67,"endTime":240.779,"body":"operate in the business must be paid"},{"startTime":240.779,"endTime":242.79,"body":"a market salary for their services."},{"startTime":243.45,"endTime":246.54,"body":"All distributions paid to"},{"startTime":243.45,"endTime":246.54,"body":"shareholders must be done to their"},{"startTime":246.54,"endTime":248.01,"body":"percentage of stock ownership."},{"startTime":248.7,"endTime":251.85,"body":"There are also a number of corporate"},{"startTime":248.7,"endTime":251.85,"body":"formalities that you must adhere to"},{"startTime":251.85,"endTime":255.75,"body":"such as holding certain meetings and"},{"startTime":251.85,"endTime":255.75,"body":"keeping minutes on those meetings."},{"startTime":256.11,"endTime":260.31,"body":"If you run a foul of any of this, the"},{"startTime":256.11,"endTime":260.31,"body":"IRS can strip you of your selection."},{"startTime":261.089,"endTime":262.98,"body":"And what happens if they do that?"},{"startTime":264.255,"endTime":268.125,"body":"Well, you revert back to the tax status"},{"startTime":264.255,"endTime":268.125,"body":"of the entity type that you created."},{"startTime":268.245,"endTime":272.505,"body":"So corporations, for example,"},{"startTime":268.245,"endTime":272.505,"body":"would have all of their income,"},{"startTime":272.565,"endTime":274.515,"body":"double tax back to the date."},{"startTime":274.544,"endTime":275.505,"body":"The election is revoked."},{"startTime":276.395,"endTime":278.885,"body":"That sounds like an absolute migraine."},{"startTime":279.544,"endTime":281.405,"body":"So what else should our"},{"startTime":279.544,"endTime":281.405,"body":"listeners be thinking about?"},{"startTime":282.544,"endTime":287.135,"body":"One thing would be how their state"},{"startTime":282.544,"endTime":287.135,"body":"taxes and S-corporation versus an LLC."},{"startTime":288.255,"endTime":294.435,"body":"In California, for example, S corporations"},{"startTime":288.255,"endTime":294.435,"body":"pay a tax of 1.5% on their net income."},{"startTime":294.734,"endTime":298.575,"body":"Whereas an LLC pays a tax"},{"startTime":294.734,"endTime":298.575,"body":"based on their gross receipts."},{"startTime":299.414,"endTime":304.125,"body":"High revenue, low margin businesses"},{"startTime":299.414,"endTime":304.125,"body":"are typically negatively impacted"},{"startTime":304.125,"endTime":308.565,"body":"by being an LLC in California"},{"startTime":304.125,"endTime":308.565,"body":"compared to being an S corporation."},{"startTime":309.195,"endTime":309.735,"body":"And."},{"startTime":310.039,"endTime":315.77,"body":"As I mentioned before, they're just a lot"},{"startTime":310.039,"endTime":315.77,"body":"less flexible than an LLC, which can cause"},{"startTime":315.859,"endTime":318.05,"body":"operational challenges for a business."},{"startTime":318.77,"endTime":323.06,"body":"And they can cause problems in attracting"},{"startTime":318.77,"endTime":323.06,"body":"investment capital from those who"},{"startTime":323.06,"endTime":326.78,"body":"would be ineligible to own the stock"},{"startTime":323.06,"endTime":326.78,"body":"or those who simply don't want a K one."},{"startTime":327.59,"endTime":331.219,"body":"For these reasons, a number of"},{"startTime":327.59,"endTime":331.219,"body":"escorts become C corpse when they"},{"startTime":331.28,"endTime":333.14,"body":"seek investment to scale the business."},{"startTime":333.675,"endTime":335.475,"body":"And boom goes the dynamite."},{"startTime":335.805,"endTime":337.125,"body":"Eric very informative."},{"startTime":337.335,"endTime":340.635,"body":"And I think we flirted with the five"},{"startTime":337.335,"endTime":340.635,"body":"minute Mark there to our listeners."},{"startTime":340.635,"endTime":344.295,"body":"If you have any questions on entity"},{"startTime":340.635,"endTime":344.295,"body":"formation, or if you just need a"},{"startTime":344.295,"endTime":347.475,"body":"new CPA and you like what you're"},{"startTime":344.295,"endTime":347.475,"body":"hearing from Eric, you can email"},{"startTime":347.475,"endTime":350.565,"body":"him at Eric at dark horse dot CPA."},{"startTime":350.985,"endTime":355.035,"body":"Once again, that's Erik with"},{"startTime":350.985,"endTime":355.035,"body":"a K at dark horse dot CPA."},{"startTime":355.53,"endTime":360.06,"body":"So as always, we'd like to thank you for"},{"startTime":355.53,"endTime":360.06,"body":"tuning into TMS, or if you're not into"},{"startTime":360.06,"endTime":365.49,"body":"the whole brevity thing, taxes made simple"},{"startTime":360.06,"endTime":365.49,"body":"because there's TMI and then there's TMS."},{"startTime":366.2,"endTime":366.41,"body":"Yeah."}]}