Episode 012: Q&A 5

On this episode, I answer the question "When is the best time of year to form an s corporation?"

If you want more info on s corps, check out this blog.

Check out this blog for more info on forming your LLC at the end of the year.

Episode Transcript

Braden: (00:00)
Hello and welcome to episode 12 of the unfuck your biz podcast. As always, I am your host, Braden super excited to have you here today for our Q and a episode number five. Now, if you haven't listened to any of these QA Q and a episodes before, a concept is pretty simple. I have a Facebook group for small business owners. It is called Brayden's besties. If you want to search and join us, B R a D E N is how you spell my name, Brayden's besties, you can join. And upon joining you will be prompted to provide me with one legal or tax question you have in your business. I save all of those. And then each Tuesday here on the podcast I answer and discuss one of those questions. So the question that we're going to tackle today is when is the best time of year to form an S-corporation?

Braden: (00:55)
Great short question for us to tackle before we dive into this question. I'm gonna let you guys know, uh, one more time that I have a masterclass coming up on the 20th that is a next week. I have two on Wednesday and then two the two on the 22nd, which is Friday. So I'd love for you to sign up. We're going to be talking more about S corpse during that master class and I will also be giving information about my course legally launched that will teach you how to do your own eSport. All right, so let's dive in. Typically the answer to this question, when is the best time of year to form an escort is the sooner, the better. The way the escort works is it saves you some tax dollars by having you put yourself on payroll and paying yourself quarterly distributions. I've talked about this in some previous episodes.

Braden: (01:45)
You can go check out those for more details. I also have a blog I can link in the show notes, but um, the way it works is if you do an escorp midway through the year, you will file what's called a part, your tax return as a sole proprietor and then a part your tax return as an escort. So if you do it in July, then you get escort benefits for half the year. Uh, you get the picture, but there is this period of time that I call the dead zone. So in the state of California, our annual minimum franchise tax, which is the fee you pay for having an LLC is $800 per year. Your initial $800 for your first year and an LLC is due on the 15th day from the fourth month. From the date you file your LLC. I always just tell people three months, it's easy to remember. So if you form in August, you're going to go September, October, November, pay your $800 franchise tax for this calendar year, and then 2000 twenties tax is to do by April 15th. So you end up paying that within a few short months. So a lot of people don't end up filing LLCs inQ four of the year.

Speaker 2: (03:03)
Okay.

Braden: (03:04)
You might be a little confused and say, I thought we were talking about eSports. We are, a lot of people don't know that escorts are not actually a legal entity. It's just a tax status. So you first must file an LLC or a corporation. Typically LLCs are better for small business owners and then you elect for that LLC to get special tax treatment and that's when we say you have an S Corp so you form the LLC first and then you file a form 25 53 with the IRS to get your eSport tax status. Good news is, although I said August through November is the dead zone. December really is the very best time to do it because we have special rules in California and many other States have similar processes that make it so that if you file after a certain date you don't have to pay the franchise tasks tax for this year and then I'll also sets you up to the operating as your escort from day one of the new year to get all the tax savings moving forward. So on my website I have a blog called the forming an LLC in California at the end of the year. You all can go check it out. I'll put that in the show notes as well. I'm actually going to make a quick note for myself before I forget.

Braden: (04:19)
I probably should have someone to help me do this while I podcast, but it's okay. I'll make sure I get that in there. So many new business owners which to launch their business and the new year, but the legalities to get started can be complicated. I already explained the minimum franchise tax and kind of how that plays out. I also noted the good news is California offers some carve-outs to those who file at the end of the year. In the state of California, if you form your LLC on or after December 17th you are not required to pay annual minimum franchise tax for that year. Therefore, if you wish to get your business off the ground and the new year or simply want to make your business an LLC or S-corp in the new year, then you can take advantage of the carve out to save some cash and get the process moving. So that's what I recommend doing in my course legally launched.

Braden: (05:17)
All students will be going through the process to form their LLC and I of course will be advising them to hold off on actually filing it until December 17th in order to get this savings. If you want more information about LLCs and whether you need one sign up for the masterclass, I would love to see you there next week. And don't forget, if you have any questions, hop in the Facebook group, let me know. I would love to chat and get to know you more in there. Thanks as always for tuning in and I will be back in your earbuds and a few short days.