5 Building Blocks, Video 5 from Blumer CPAs on Vimeo.

Transcript: 

Hey, Hey Jason, Blumer here. We’re in our fifth video series on five Building Blocks of Operating a Corporation. This is just the stuff we do in our sleep for the creative agencies we work with. And this is going to be the last video in the series, but it’s really long so. Because I’m going to give you an example. The examples are the best way we use this deck to teach our clients actually how they’re going to save money. So just bear with me as we try to get through this long presentation. This is really going to help bring a lot of understanding I think. So what you’re looking at here is just a P&L. That’s what we call a profit and loss statement on the left. Revenue, expenses, payroll, profit distributions, and then just a total line at the bottom.

And you got two examples up here. You got what you used to be, LLC sole proprietor example. And you got what we’re moving you into an S-corp example. And this really will help you see exactly where does this tax savings come from? But to just show it to you, let’s just put up some things up here at the front, the LLC. Let’s say you made a $100,000 just expenses of 25 grand. You had taxable profit of 75. You took 50 out, right. Since you’re just a freelancer, just starting, you got 25 cash left. Let’s run that same example as an S corporation. Now, but as an S-corp, remember you have to take a wage. So you see there’s a line payroll to owner 25 grand, right? So that’s a new… What we’ve done is we’ve taken 50, half of the 50 of the draws you originally took, and we moved it to the $25,000 line in payroll.

And then the other 25,000 you just continued to take in distribution. So this is really the same net example 100 in revenue, 25 minus general expenses. Now there’s a new expense on this profit and loss statement for this S-corporation that’s now an agency. This agency that is now an S-corporation rather. They’ve taken 25 grand out in payroll with 50 leftover for taxable profit. They’re taking draws at 25 and then 25 cash left over. Okay. So there’s the examples and how they’re different. Now let’s look at the tax effects. And remember from some of the videos you’ve seen before, there’s two taxes you’re paying as an owner and that’s a regular tax, that’s the tax every single person pays in the whole world. Then there’s a self-employment tax. Now the regular tax or what we call ordinary tax, that’s on a graduated rate, right? That’s the brackets people go through when they filed their taxes.

We’re making an assumption here that that tax is 15%. So this is a lower income person. So their pay is a little bit lower, but it’s just an example of 15%. It would work at higher rates too. We just wanted to show a similar example. So let’s look at the taxes that take place. Okay. So on the sole proprietor side, the taxable profit is going to be taxed at a regular tax, $11,250 at that 15%. It’s also going to be taxed at the self-employment rate of $11,475. So the total profit is being taxed $22,725. So that’s the total. Let’s see how that applies to the S-corp side. Now on this S-corp side, there’s various levels being taxed. So the payroll now is being taxed at the regular tax, right? Because you’re going to get a W2 and you’re going to put that on your 1040. You’re going to pay tax on that money you pulled out as payroll.

And then there is self-employment tax also applied. Now for self-employment tax in an S-corporation, the company pays half, and then the employee pays half. It still totals the self-employment tax at 15.3. And so the total tax on that 25 grand, you put yourself in payroll is $7,575, but you didn’t have that as an LLC. Well, we’re going to see where that saved us some money. Now watch this. The 50 grand down here, this taxable profit in an S-corp gets taxed at regular tax. It does not get taxed at the self-employment tax. That’s the profit in an S-corp example. And you can start to see the differences now, right? We’re going to highlight those boxes between the two examples. So the total tax on your profit in an S-corp is $7,500. So that total is $15,075 bucks. Okay. You can already see the total lines and the total tax columns that they are different in these two examples.

So let’s kind of show the difference. So on this payroll line, the tax went up by $7,500, right? But if you net the $22,725 [inaudible 00:04:39] the $7,500 on the escort, you’ll see the tax went down for what’s taxed on the profit side of 15. And that total savings is $7,600 in this example. That’s real savings. That’s tax you’re not going to have to pay. And you might say, all right, where did this come from? Well, it’s these two areas here that we’ve highlighted in green. These two… So what we’ve done is the IRS used to say, as a sole proprietor, all of your profit is tax for self-employment tax. But on the S-corp side, now the only thing that’s taxed for self-employment purposes is what you choose to pay yourself in a reasonable wage.

You now have control over what you’re saying you get to be taxed as self-employment tax. Now it does have to be a reasonable wage, but you still get to tax it in the way that you want. And that’s the money you’re going to save. The difference between that $11,475 and the $3,825 is that $7,650 that we save. So that’s an example. You’re going to have to slow this video down to kind of walk it through. But this is roughly what we walk our clients through. And we’ll put their numbers in these examples and help them see exactly what’s going to work for them. So I hope that helps. If you do need help, we can help you do this too. Just email us at info@blumercpas. Thanks for watching. We’ll see you.

5 Building Blocks, Video 4 from Blumer CPAs on Vimeo.

Transcript:

Hey, hey, Jason Blumer here with Blumer CPAs. We’re in a series, I hope you’ve been watching, on the 5 Building Blocks of Operating a Corporation.

It’s important when you go from an LLC or a sole proprietorship and you structure up into a corporation that you do that right. We’re going over a deck that we actually use with our clients to help teach them, and I wanted to make a series to teach you, too. We talked about this at a high level last time, these five building blocks. We’re going to go into more detail here now.

There’s a couple ways to become a corporation; and that’s our goal, to become an S corporation. For short, we call it S corp; and that S just stands for the subchapter S code in the IRS tax code that allows us and affords us these rights to move you into an S corporation and help you save money.

There’s a couple ways to do that. Sometimes an LLC elects S corp status with the IRS. That’s really not creating a corporation. It’s just leaving you as an LLC. But it’s saying to the IRS, “Hey, can I be taxed as an S corporation?” That’s all you’re asking. You’re asking for permission. Another way is to actually create a corporation in your state of domicile with an attorney.

Once you do that, the next two blocks are very related, distributions and payroll. Now there’s strategy, once you’re an S corp, there’s strategy to pull cash out of your corporation in a more tax-advantaged way, and your firm will help you do that. What you used to call draws are now distributions, and that’s where we’re going to be protecting a lot of your cash that you’re pulling out. It’s not going to be pulled out with self-employment or payroll tax attached to it anymore.

Now, the IRS knows that, so what they require for an S corp owner is that you pay yourself a reasonable wage. That’s a phrase the IRS uses. They don’t define it, so your firm will define that for you. We go through an extensive assessment, a reasonable comp assessment for the owners of our S corp agencies that we help, to help them know what is a reasonable wage. Then we can define and protect as much money in tax as we can.

Now, taxes then as an S corp, you still will pay payroll taxes, but your distributions won’t have payroll tax applied to it. Now, but when you’re pulling money out of your profit, basically what you’re doing is you’re pulling your profit out. That’s still taxable money, but it’s not self-employed tax any longer the way it was as a sole proprietor or when you were taxed as an LLC before you were an S corp. Distributions, or what we used to call draws, had self-employment tax applied to it. But in an S corporation, pulling profit, distributions out in profit, you get to avoid and bypass that self-employment tax. Now, it takes some planning to do, but what you’re still doing is paying regular tax. There is a regular tax. That’s the income tax everybody pays on their 1040 return every year. Everybody pays regular tax. You’re still going to pay regular tax on your profit, you’re just not paying self-employment tax, which is the way we can save you the most money.

Then in the structure, if you have a partner, even if you don’t have a partner in an S corp, you don’t get to do whatever you want. So you’ve structured up into a corporation; and when you do that, you now do not get to do anything you want. You need us to help you. What we do is we apply structure to our clients to help them know what they can and cannot do, how they pull cash out, how they cannot pull cash out. Because you have to remember as the owner of the corporation, anytime you pull money out of that business bank account and put it in your personal bank account, that’s crossed that corporate line and it’s going to create a taxable event. We got to help you do that in the most tax advantaged way.

And hey, that’s what we do. So just email us info@blumercpas if we can help you do that, or if you think you’re not pulling the best tax advantage out of your companies. That’s what we do. We’ve been doing it for a freaking long time. So let us know. Take care. See you.

5 Building Blocks, Video 3 from Blumer CPAs on Vimeo.

Transcript:

Hey, hey. Jason Blumer here with Blumer CPAs, and we’re in a series of the 5 Building Blocks of Operating a Corporation. We’re using a deck our team uses to teach our clients the value of structuring their business around a corporation. And so, we’ve been talking about things already up to this point. But those five building blocks are something I want to hit now, and these are five things we really want to talk about with our clients as they’re growing and they need more structure. Typically as they’re electing an S-corp status as they’re moving out of what a solopreneur, a sole proprietorship for tax purposes, or they’re just what’s called a single-member LLC, and they’re ready to move into an S-corporation. We don’t want them to do that blindly. We want our clients to understand some things, and I’m not going to really reveal a lot of things in these blocks just yet. But I do want to talk about these five main building blocks of a corporation.

Now there’s a lot to a corporation, so somebody else watching this would go, “Hey, there’s a lot more than that.” That’s true. But what we do is teach our clients from the outset, what it means to step into a structured company, a legal entity, and how you feel hemmed in and bound by that when really that’s what brings a lot of safety to your growth. So I’m just going to hit these titles in the 5 Building Blocks of a Corporation.

The first one is the corporation. An attorney can create a corporation in the state that you’re actually domiciled in, is what they say. Or we can actually take your LLC, something that you’ve already created in the state that you live, and we can elect that as an escort with the IRS. And we do that work. Distributions and payroll, two and three, go together. So now that you step into a corporate structure from an LLC or a sole proprietorship, you got to start paying yourself in two different ways through what’s called distributions and payroll. Actually, the IRS requires that you take what’s called a reasonable wage. That’s a payroll, and that’s money a payroll system pays you and has payroll taxes come out, even if you’re the only owner and you’re the only employee. It’s required if you’re an S-corporation. The IRS requires that of you.

And so what we start doing is we use the ability to manage taxes in a way so that you can get the distributions and payroll to pull money out of your company in the most tax-advantaged way. That’s what an S-corporation lets you do.

And then taxes are part of the deal. So now you’re going to be paying payroll taxes, remitting those. So we use payroll systems to do that. But you also are going to still have payroll in your company, or profit in your company rather, and you’re going to pay taxes on that. So estimated taxes are still part of what you have to pay, even when you elect an S-corp status and estimated taxes should have been something you were paying when you were a sole proprietor as well.

And then what we do is we step you into a structure. That is something we help create. It is a more defined legal entity with payroll systems. And we get into a relationship with our clients, where we manage the structure of that, that starts producing a lot of tax advantage profit in your company. And if you’re hitting certain profits, 80, 100 grand, whatever you are per year as a sole proprietor LLC, you may want to talk about, thinking about stepping into a structure that can pull a lot of tax-advantaged taxes out of that. So that’s a little bit more about what we do. Thank you so much for watching the blog. We’re going to keep talking about this 5 Building Blocks of a Corporation. We’ll see you. Take care.

5 Building Blocks, Video 2 from Blumer CPAs on Vimeo.

Transcript:

Hey, hey, Jason Blumer here with Blumer CPAs. And if you saw our previous video, we’re starting a series on the Five Building Blocks of Operating a Corporation. This is actually a slide deck we use to teach clients, and our team uses it to teach clients how to form and bring structure into their creative company. And so we’ve talked about this title last time. So what I want to hit are these five different areas here. What Got You Here Won’t Get You There is the title of the slide. Here’s five different ways to look at phases or growth as you go through, needing to bring more structure. So you see the end column of this is a structured company. So let’s talk about how we got there real quick.

So a lot of creative agencies start as solopreneurs basically. And they just start out operating under their same name and that’s fine, but what happens is, they start thinking about becoming an LLC when they start needing some help. So they start subcontracting out and that’s the first step towards using and leveraging a team because the owner can’t do everything at that point.

And then when you get to the Steady phase, that’s where you’re starting to… You got clients that keep coming back and you have steady revenue. You can predict a year in what that revenue’s going to look like. And so you start really needing to produce a team and processes to support the steady production of revenue. So you’re at a steady movement and you can predict and know that you’ve got a real business. You’ve got to start bringing some things in.

Now, the next phase is important. As the owner, you have to start really pushing off a lot of that technical, creative work, the stuff you did that you were so good at when you started the business. So in this fourth stage, you have to shed a lot of your processes. You have to pour your thoughts in mind into your team so they can help you grow. And if you, as the owner stay really involved in that technical work at this phase, it’s going to bog you down and keep you from scaling. And then of course, what we want to do is, lead companies to be structured. So as you have more revenue, more team or processes. You actually need not only a more structured legal entity to manage your taxes in a different way. You actually have to grow in a different way. So you’re eventually going to lead towards a more structured environment.

And if you’re struggling with some of this, probably at some of these stages, if you’re not shedding a lot of the past and embracing some new things, realizing what the title says is, what got you here won’t get you to the next phase, if you’re not doing that, just contact us at info@blumercpas and we’ll help you figure out what growth ceilings you hit. And that’s what we do. And then our team supports that accounting tax part of our work. So just reach out to us. Thanks so much. We’ll see you.

5 Building Blocks, Video 1 from Blumer CPAs on Vimeo.

Transcript:

Hey, Hey, Jason Blumer here with Blumer CPAs, and we’re starting a new series on our blog about what you see on the screen, which is Five Building Blocks of Operating a Corporation. And this is something we do a lot with creative agencies, any kind of creative company where they’re growing. And as companies grow, they need more structure, and so specifically, a lot of the ways we use this deck is actually to teach our clients how a lot of changes we’re going to make in their corporate structure actually create a lot of tax savings for them. So that’s how we use this debt, but I wanted to make a blog series to show you some of the things we do. And before we dive into a lot of other things in this slide deck, there’s a number of slides, I want to just talk about the title of this slide, What Got You Here Won’t Get You There. And you do see five steps towards corporate structure. We have five different ways to look at moving towards a corporate structure.

But here’s one main point I want to make about growth, creative growth, and that is, when you’re moving into different sizes of revenue and team size, you need more structure. That’s just how that works. We’ve studied growth a long time for services companies and so there’s a sense of, what’s going to take you to that next level? That’s why you see levels here on the screen, but what’s going to take you to that next level of growth is not what got you to this same level. So the habits and the baggage and the ways you acted and performed when you had two people on your team is not the way you can act and perform when you have 15. It actually won’t work. You can’t scale and grow, and so a lot of growth ceilings and walls that creative agency owners run into is when they keep acting the same way at a different size structure.

And that’s what we do, we help identify some of those growth ceilings and what’s happening and if there’s an efficient production of revenue through the company. So we’re going to dive into some other parts to that in another video, but we just want to highlight in this title, What Got You Here Won’t Get You There, in your growth. So keep that in mind and watch our blog so you can find out the other videos in this series and we hope it helps you. And just contact us at info@blumercpas.com if you want to find out more about how you can use your structure to produce more profit in your agency. Thanks so much. We’ll see you.