IS $100,000 A MAGIC NUMBER?

At every event we attend someone always stops me to say that their tax professional told them not to incorporate until they are making $100,000. This figure is quoted so frequently you might think it is some kind of magic number; however, there is a simple explanation for this amount.

Tax professionals think in terms of tax. They see owning an entity as another layer of hassle that you can avoid until there is a tax benefit – generally when you are earning $45,000 to $50,000 after expenses, or approximately $100,000 gross revenue. This is the point where you will save more in taxes than you will spend on your team if you have your business in an S-corporation or LLC-S. What team? The payroll company that will issue the W2 paycheck to pay you as an employee in your own company, the bookkeeper who will track your distributions of profit to the owner, and the CPA who will file the company tax return.

If you have read the Primer on our website, purchased Your First Entity Solution, or heard me speak, you know there are many more reasons for incorporating than just tax benefits. Think about liability protection, asset protection, credibility, privacy, and the psychological benefits and smooth flow that come from building your business inside an entity from the start. You get these benefits in a flow through LLC. When you are ready for the benefits that come with an S tax election, all you do is create a resolution to vote on the change of status, amend your operating agreement and file the appropriate IRS form on time. Easy – with none of the hassles of having to change your business from a sole proprietorship to an entity. Of course, if you already meet the criteria for an S tax election and are not a highly paid W2 employee as well, we can start you as an S-corporation from the beginning. To your success, Wendy. info@yourentitysolution.com