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as of 2021 there are 31.7 million business owners in the united states many business owners are setting up llc's one out of every six taxpayers that comes to my office owns an llc i own six llc's and i've set up over 5 000 llcs for my clients l to the l to the c i love saying llc because it reminds me of ll cool j llc's are the most popular business vehicles that business owners set up why is it that most business owners who have llc's aren't sure if they should be in llc's my name is carlton dennis and in today's video we are going to go over what you need to consider before setting up an llc llc owners make a lot of mistakes i'm sorry and in today's video i need to point out some of the mistakes that you need to be conscientious of before establishing your llc let's dive in mistake number one is not knowing the type of income you're receiving prior to setting up your llc this is really important and reason why is because there are three different income types you could be receiving and it could determine whether or not you need an llc versus an s corp or a c corporation the three different income types that you need to be familiar with are number one ordinary income ordinary income is everyday income that you work for and is typically in the form of w2 wages or 1099 compensation the next form of income is passive income passive income is income you technically do not have to work for typically you're familiar with passive income from investment properties or interest that you earn off of the money that you have in your bank account the third type of income is portfolio income portfolio income is typically income that you receive when you decide to sell capital assets or if you have capital gains tax from the sell of a rental property these three types of income are important for us to know because it can help us decide whether or not it makes sense for us to have an llc so let's talk about it number one passive income if we have passive income what we have to understand is that passive income is not subject to social security tax or medicare tax that ordinary income is subject to so when you think about it it may not make sense for you to worry about whether or not you have to eventually transition your llc to an s corporation if you have rental real estate if your income is passive you don't have to worry about self-employment tax so typically a lot of real estate investors will establish llc's for their real estate holdings so if you ever had the question in your head why do people set up llc's as opposed to c corps or s corporations for their real estate a big deciding factor around this is because real estate investors are not subject to the social security and medicare tax that ordinary income earners are subject to this leads me to ordinary income ordinary income is the income you're familiar with when you're working a job where you are putting in labor anytime you're putting in labor you're going to have to pay into social security and you're going to have to pay into medicare taxes and if you decided to become a business owner that means you pay into self-employment tax it's been talked about in all of my youtube videos if you've seen them now one thing that you have to understand about ordinary income is that ordinary income you will pay 15.3 self-employment tax which is your social security and medicare but then you will also pay your federal taxes and your state taxes so knowing that ordinary income is subject to self-employment tax federal tax and state tax we have to define what type of business owners need to know that their business is actually ordinary income instead of passive business let's talk about that i have clients all the time that'll get on the phone with me and tell me carlton i have a passive business i started amazon automation i'm doing amazon fba i'm selling products on etsy i have my online shop any of these clients that i talk to that have these businesses that are very automated had to work to get to a place where their businesses are automated they sat on the computer they figured out how to put up ads build their website hire the contractors and someone else is doing the fulfillment and dropping off the orders to the house that is a business that requires work and if labor is involved we are subject to social security and medicare taxes federal and state taxes so i just wanted to make sure that when we go into setting up a llc that we also understand which type of businesses are ordinary income businesses and truly understanding what would be considered a passive business last but not least is portfolio income i don't really get too much into the portfolio income unless i'm dealing with my real estate investors which i primarily focus on if you happen to have real estate income and you decide to sell an investment property you're dealing with capital gains it could be short or long-term capital gains depending on how long you held on to that asset but if you're aware of capital gain income you might realize that this is actually categorized as portfolio income to your tax account so understanding these three types of income can let us know whether or not you should have an llc that's going to remain as an llc or if you have an llc that will eventually be switched to an s corporation or another desired entity structure mistake number two with llcs is not establishing your llc prior to knowing that you wish to have a real estate acquisition it comes up pretty often that i get on the phone with a client that told me that they just bought an investment property and now they're trying to decide whether or not it makes sense for them to have an llc and i sometimes wish that they would just have a conversation with me prior to them buying the rental property because then i might have advised them to establish the llc prior to buying the rental property so that they can buy the property in the name of the llc that they establish for themselves this is a way that we can completely avoid having your name ever online at the accounting assessor's office saying that you're on title for owning the property but then we get to a place where you want to have that asset protection because you find out that someone could slip and fall and hurt themselves inside of your property so you eventually want to have an llc for liability protection but the property is already in your name so now we have to decide does it make sense to set up an llc and do a quick claim deed and re-title your property in the name of the llc well this is where we can run into some issues at least i've had clients run into issues one of the issues that they run into is this whole do on sale clause where now there's a stipulation in their mortgage agreement that says that anytime a property is being transferred or sold that the mortgage is now due so this is where we have to be extremely careful and mindful prior to establishing llc's into investing in real estate we have to speak with the tax pro we have to speak with our mortgage company we have to determine if we can purchase a rental property in the name of an llc and if you're setting up
Thanks for your comment Gianna Fenbert, have a nice day.
- Camila Todt, Staff Member
amari cooper is now going to be for the first you know two-thirds of the fantasy season weeks one through 12 gonna be playing with jacoby brissette and it's just in jacoby percent's not nearly the player that deshawn watson is and if you look over jacoby brucette's career he started 37 games he has 36 total touchdown passes not in those starts in other games which he appear as a backup or a fill-in as well the offense is just not going to be high octane through the air it's hard to find a perfect analog for mari cooper but if you look back to last season jacobi percent started and the dolphins number one wide receiver glenn waddle is sort of following the model that i'm describing he got plenty of volume he had eight targets in those five starts 5.8 catches 53.2 yards that's fine that's nearly a little over 11 fantasy points per game problem was he had zero touchdowns zero in those five starts that jacoby brissett made for the dolphins last year so i think given the now inconsistent resume of mari cooper multiplied by the fact that touchdown equity just went down i think amari cooper slides closer to wide receiver 30 as opposed to wide receiver 20. if he had desean watson for the full season or even half of it he might have been able to be justified in certainly theater sean watson for the entirety of it he might be a top 15 wide out absolutely and now with that being said knowing that those two guys are the guys what about some of those auxiliary pass catchers david and joku donovan people's jones david bell later on flyers for people is it just based on what this offense is going to be are you is the goal take your flyers from another team i think so and i think if i'm looking at those late round flyers i'm just going to go target an offense that we think is going to score a whole bunch more points and touchdowns right you go find whether you think the packers are going to be really good on offense this year and you said rather take a romeo dobbs versus a donald from people jones or whether you think that there is somebody that's going to emerge that we haven't talked about enough kj osborne from the vikings if anything happens j osborne or whether you think someone in kansas city is going to emerge whether you think that josh palmer is going to be a useful third receiver for the chargers there are a lot of examples of guys that could be really good isaiah mckenzie for the buffalo bills stepping into bigger roles this year that i think i would pivot elsewhere the touchdown upside is just there's a large enough sample size to know that it's suppressed the browns are probably going to be closer to like 20 points per game as an offense than 30 yeah as a result of that all the pass catchers just went down in value yep thanks for watching espn on youtube for live streaming sports and premium content subscribe to espn plus
Thanks RipsgillaY your participation is very much appreciated
- Camila Todt
About the author
I've studied radiochemistry at Huston-Tillotson University in Austin and I am an expert in industrial organization. I usually feel geeky. My previous job was dairy technologist I held this position for 27 years, I love talking about marching band and nail art. Huge fan of Susan Rice I practice still rings and collect casino chips.
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