Video instructions and help with filling out and completing Why Form 2220 Entities

Instructions and Help about Why Form 2220 Entities

So the three main entities when you're starting up your company is usually going to probably be an LLC escort or sole proprietorship and I'm walking through each of those so with the LLC you're going to first of all you're going to be pairing what's called a self-employment tax and that's 15% out of what you make and the self-employment tax is pretty much it's just saying that you work for yourself you are employing yourself and there's a tax for that but you know check with your state or whatever for the rate but I'm just going to give you a rough estimate from what I've learned it's about 15% also LLC there's no personal liability which makes it you know a popular choice with a lot of people and for those you that I don't know what personal liability means that means for example let's say somebody gets hurt in your store for example if you got a LLC they can't sue you personally so whatever your name is let's say your name is John Hancock they can't sue John Hancock personally they can't go after his house none of his assets his bank accounts none of that because the LLC protects him so they can only sue the LLC and the LLC is disconnected from personal liabilities so from anything from holding you you know at fault for anything personally so that's what personal liability means also with like lawsuits and stuff like that if somebody has like a lawsuit or whatever against you they will only be able to sue your company and not you personally okay the next thing the next benefit of an LLC is unlimited amount of owners or shareholders so that means that you can have ten partners if you want 20 partners and don't matter you have unlimited amount of owners and also they got what's called pass through taxation so that just means that let's say that your store makes a million dollars per year in a year as a profit the you won't get taxed as a company instead you will you know report that profit on your personal income tax so you will file that million dollars personally on your personal income tax when you do it at the end of the year and that's what pass through taxation means it means that the company does not get taxed itself and said the profits get passed through to the owner and the owner is taxed when he files his income tax return of the year on those profits so escort one of my favorite options and I'm gonna say it because there's no self-employment tax so right off the bat you saving 15% or whatever the percentage is for self-employment tax in your state because I know what different it differentiates throughout all the different states it's different in different places so look it up for yourself but anyways that's one of the best benefits of an escort is you don't have to pay no self-employment tax also there is no personal liability so the corporation is liable for everything and you're not liable for anything personally but on but one thing about escort is it's only allowed 100 owners so it's only allowed 100 shareholders so that's the maximum amount of partners that you could have in your business and your company is a 100 so keep that in mind and S corp is also passed through taxation so whatever the profits is they are you know report it on the personal income tax return so if you got four partners right so let's say that y'all make a million dollars and y'all y'all own the company 25 percent so then that million dollars will be split up into two hundred and fifty thousand dollars for each person and each person will file that on their tax return in addition to their salary okay so for example let's say you pay yourself sixty thousand dollars a year to operate your store as the manager or whatever as the whatever you want to be called the CEO of your store the owner that's just salary is sixty thousand so you will pay taxes on that sixty thousand throughout the year but then you'll also pay taxes on that 250 thousand dollar profit that you get that's separate from your salary so that's what past-due taxation is an example of an S corp and how the profits will be split up amongst all the partners that are during tax time the next most popular formula of ownership is called a sole proprietorship and a sole proprietorship is going to come with that self-employment tax so right off the bat you're going to be spending more money as a sole proprietor in tax time so proprietorship is you personally liable so if anybody gets hurt in your store or if anybody tries to sue you or whatever any type of situation with insurance you are personally going to be liable they're going to come after your home your bank account or your assets whatever you you personally own so that's why I so proprietorship is dangerous a sole proprietorship is usually only one owner so is usually no partners in a sole proprietorship and a sole proprietorship is passed through taxation so whatever that person makes and the profits he files out on this tax returns and that's pretty much the top you know overall just of LCS corporate and sole proprietorship my personal choice in my personal favorite is escort because they got no self employment tax mainly and I feel like it's better to save money if you can you want to save every dollar that you can so if you need to talk to a lawyer cool you know consult if you got more questions that you need to go in-depth about you know talk to a lawyer or talk to an accountant and you