LLC vs. S-Corp: The $10K Decision Every Entrepreneur Faces

Summary

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Podcast Summary: "LLC vs. S-Corp: The $10K Decision Every Entrepreneur Faces"

The Amy Porterfield Show – Ep. released November 20, 2025
Host: Amy Porterfield
Guest: Braden Drake, Tax Attorney & Online Business Expert

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Episode Overview

This episode dives deep into a pivotal decision all entrepreneurs eventually face: choosing between an LLC and an S-Corp for their business structure. Amy Porterfield, with the help of tax attorney Braden Drake, demystifies complex tax terms and business structures, focusing on actionable insights for online business owners. The episode is rich with personal anecdotes, practical advice, myth-busting, and step-by-step examples that clarify how legal and tax choices impact business growth, peace of mind, and tax savings—often as much as $10,000 or more per year.

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Key Discussion Points & Insights

1. Common Financial & Tax Mistakes (04:00–06:00)

• Mixing Personal & Business Accounts

  • Braden: “The number one is not having a business bank account or at least having a separate bank account aside from the personal bank account. That's step one for everyone.” (04:13)
  • Tracking business income and expenses properly is essential for stress-free tax time and good bookkeeping.

• Inadequate Tracking and Overspending

  • Not tracking everything or simply overspending to chase deductions instead of financial health.
  • Braden: Overspending for "tax write-offs" is a common but costly error.

• When to Hire a Bookkeeper

  • Not everyone at $100k revenue needs a bookkeeper—wait until you have an S-Corp, then it's more necessary. (05:37)

• Entrepreneurs and Financial Literacy

  • Only about 10–20% of online entrepreneurs truly know how to read their P&L. Most struggle with understanding their finances. (06:00)

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2. Financial Routines & Habits (06:51–09:03)

• Finance Friday & Money Monday Routines

  • Braden advocates for a simple, weekly habit: “The number one thing is doing your bookkeeping on a weekly basis.” (07:09)
  • Finance Friday (business) and Money Monday (personal) keep you ahead on transactions, credit card statements, tax savings, and unpaid invoices.

• Time Commitment:

  • For high-transaction-volume businesses: 30 mins/week.
  • For newer owners: as little as 10 mins/week. (07:59)

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3. Tax Deductions: Facts vs. Myths (09:03–13:40)

• Bad Advice From Social Media:

  • Don’t believe flashy write-off tips like buying luxury vehicles (e.g., G Wagons) or expensive shopping sprees “for business.”
    • Braden: “If it sounds too good to be true, it probably is.” (10:23)

• Smart Deductions You Probably Missed:

  • Home Office Deduction: Includes part of housekeeping costs and utilities if you work from a defined home office. (12:05)
  • Contractor Payments: Legitimate and often overlooked.
  • Courses & Programs: Training and education (even Amy’s programs!) are tax-deductible.
  • Hiring Your Kids: Pay kids legitimately; can contribute to their IRAs—making it tax-deductible for them and a write-off for you. (13:04)

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4. LLCs vs. S-Corps – Core Differences & Tax Implications (14:05–20:41)

• LLC:

  • A legal entity that gives liability protection—does not automatically change your tax treatment.
  • By default, taxed like a sole proprietor. (14:57)

• S-Corp:

  • A tax classification that can be adopted by an LLC (or a corporation) through IRS election.
  • Allows you to split income between a "reasonable salary" and dividends/distributions—only the former is subject to self-employment taxes.

• Braden simplifies with a real-world example:

  • $150,000 revenue, $50,000 expenses = $100,000 profit.
    • LLC/sole prop: Pay self-employment tax (15.3%) on all profit + income tax.
    • S-Corp: Pay self-employment tax only on your "salary" (e.g., $60k); remaining profit ($40k) goes to you as a distribution—saving 15.3% on that portion (about $6,000). (16:25, 19:22)

• When to Switch?

  • S-Corp usually only worth it at >$60K-$80K in consistent profit. Not before. (19:59)
  • Common mistake: not paying yourself a “reasonable salary” via payroll, risking IRS penalties.

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5. Real-World Savings & Case Studies (21:11–22:34)

• Braden shares a client case:
  • “Our course creator client was profiting over $300,000. We put them on a salary of $120,000—and after setting up retirement, they saved about $10K a year in taxes.” (21:50)

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6. How to Properly Pay Yourself as an S Corp (22:34–24:37)

• Before S-Corp: Build the habit by transferring a fixed amount from your business to yourself regularly.
• As an S-Corp:
  • Use payroll software (Braden prefers Gusto: (24:29))
  • Most pay themselves monthly or bi-monthly.
  • Key: Don’t skip payroll—big IRS red flag.

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7. Lessons Learned: Biggest Tax Mistakes (25:37–28:12)

• Amy’s Regret: Chasing write-offs for the sake of deductions (e.g., spending $20K at year-end when she didn’t need to)
  • Amy: “I spent $20,000, which is absolutely insane. Nor did she ever deliver, for the record. But it’s that feeling of I better spend money to get these tax write offs or whatever.” (00:00, 25:49)
• Braden’s Regret: Setting up his S-Corp two years too early—didn’t save him money, created extra steps and cost when revenue wasn’t high enough.
  • Braden: “I just wasn't bringing in enough revenue consistently to pay my own salary. And then there wasn't enough money left over to actually have profit to save that self employment tax on.” (27:25)

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8. End-of-Year Action Steps (30:04–31:38)

• Don’t spend for deductions’ sake. Only spend on genuine investments.
• Catch up on bookkeeping—you’ll recall more deductible expenses as you go.
• Retirement Savings: Open a retirement account before year-end, even if you make the contribution after January to get the current year's deduction.
  • Braden: “The account has to be open by the end of the year.” (30:49)

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Notable Quotes & Memorable Moments

• Braden Drake
  • “If it sounds too good to be true, it probably is.” (10:23)
  • “Transparency is one of my core values. I do profit reports on my own podcast every month. So all of this is public. I'm on track to do about 400k this year…” (07:59)
  • “The IRS is the same with LLCs: they don't recognize LLCs. They don't exist. They don't know about them...you're just taxed as a sole proprietor in the eyes of the IRS.” (29:18)
• Amy Porterfield
  • “I was literally winging it...mailing somebody a refund check and a greeting card.” (00:53)
  • “So with that, are you suggesting that most of my listeners...should look into the llc but through S Corp?” (19:33)

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Important Timestamps

| Segment | Timestamps | |----------------------------------|---------------| | Common mistakes | 04:00–06:00 | | Finance routines & habits | 06:51–09:03 | | Good/bad deductions | 09:03–13:40 | | LLC vs. S-Corp explained | 14:05–20:41 | | Case studies/real savings | 21:11–22:34 | | Payroll & paying yourself | 22:34–24:37 | | Biggest tax mistakes shared | 25:37–28:12 | | Year-end tax action steps | 30:04–31:38 |

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Where to Find Braden Drake

• Website: notavglaw.com
• Threads/TikTok/Instagram: @notavglaw
• Podcast & Book: "Unfuck Your Biz"
  • As Amy says: “Go to this episode for all tax questions—it's going to live on!”

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Tone & Closing Thoughts

True to Amy’s approachable, confessional style, the episode is funny, honest, and highly actionable, making intimidating financial decisions feel approachable and even empowering. Braden’s knack for clear explanations and memorable analogies demystifies taxes and LLC/S-Corp decisions, while Amy’s candid admissions make listeners feel less alone in their learning curve.

If you want to put your legal and tax “shit” in order, skip the panic-scrolling TikTok and bookmark this episode.

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Transcript

[A]

Real quick before we dive in. This episode includes some adult language. So if you're with the kids, maybe pop your earbuds in. Hey there. Welcome to the Amy Porterfield Show. Near the end of the year, and I heard in my ear you should spend as much money as you can to get your tax write offs and stuff. And so I needed to spend more. I spent $20,000, which is absolutely insane. Nor did she ever deliver, for the record. But it's that feeling of I better spend money to get these tax write offs or whatever. So I'm guessing you would agree that was probably not a good move.

[B]

Probably. And I'm glad you. I'm glad you gave that example, though. It's a good lesson learned. We see this happen all the time.

[A]

When I first started my business, I was all in on content and launching and building my email list, all the stuff that I knew I needed to do. But when it came to taxes and business structure, I was literally winging it. Like, I didn't even know what an S Corp was. And let's not even talk about how long it took me to hire a bookkeeper. I didn't know how to read a P and L for I'm talking for years into my business. And there were little things, like, I didn't know how to give someone a refund. I mean, beyond the taxes and the business structure, I mailed somebody a refund check and a greeting card. So literally, this is early days. I'm like, how do you even do this? So a lot of you listening, you've been in business for a few years, but I bet you could look back and remember, like, oh yeah, I was clueless too. And the thing is, even now, if you're a few years into your business, there might be things that you still just don't know around the numbers around taxes. And I wanted to create an episode where we could just lay it all out because back then I felt really behind. Like, honestly, I was a little embarrassed because I knew I should be treating my business like a real business. But I had no idea where to start. I mean, in the early days, my personal bank account was my business bank account. Like, really early on when I was making my first dollars, it was all combined, which got really messy. So if any of that sounds familiar, you're going to love this conversation. I finally brought on someone that I've been meaning to interview for many years, and he is my friend, Braden Drake. So he's a tax attorney who, who somehow makes words like deductions and s Corp and LLC and all of that feel a little bit more doable, actually empowering. So whether you're making six figures and you're still filing as a sole prop or you just want to stop feeling confused and reactive every time tax season rolls around, this episode is going to change that. We're breaking down the difference between an LLC and an S corp. How to save money this year, like he's giving a tip. And that you could do right now to save money before the end of the year with your taxes and just simple systems that will make you feel more like the CEO that you are. And I promise you, at the end, taxes may not be sexy to you, but they're going to be a whole lot more clear. So let's get into it with my guest, Braden Drake. I mean, we go way back. We have known each other forever. It's so fun and to watch your business grow. And you've seen my business evolve over time. But you're always the one person that I think about when we get into all the topics today and all the questions I'm going to ask you have been asked by my students over and over again. And I thought, let's just have one little place that I could send people back to again and again. So are you ready to just kind of do rapid fire and dive right in?

[B]

Oh, I'm ready.

[A]

Okay. All right, so here we go. What are the most common tax mistakes that you see online entrepreneurs make over and over again, and what can we do to avoid them?

[B]

From the start, we have a lot. But the number one is not having a business bank account or at least having a separate bank account aside from the personal bank account. That's step one for everyone.

[A]

Why is that so important?

[B]

Because when you go to file your taxes or do your bookkeeping at seven separates all the income and expenses. So to give you a real concrete example of this, we have folks hire us pretty regularly due to their bookkeeping. If they don't have a separate bank account and they give us their bank statements, we have no way of knowing what's a business deduction. And now we have to go through the hassle of going, like, line by line through the bank statements, trying to figure out what was personal, what was business. It's just a huge pain.

[A]

Okay, so right out of the gate, we need separate business accounts. You said there's a lot, so let's get into a few more. What's another mistake that you see online business owners do?

[B]

Well, not well, not tracking everything. So you have to have the bank account, and then you have to track everything. So let's at least get it in a spreadsheet. Deduct things that are tax deductible. And then also overspending, I think is an issue for a lot of people. So that's less of a tax mistake and more of just a finance mistake. But we, you know, we got to be savvy with our money for sure.

[A]

And do you believe that everybody who has an online business, let's say they're making 100k or more a year in their online business. Do you believe everyone should have a bookkeeper at that point?

[B]

Not necessarily. We typically, I'll typically advise a bookkeeper once you have an S corporation because they need to have like, more savvy financial statements. But up until then, it might not be the most necessary expense.

[A]

Got it. And based on your experience of working with a lot of online entrepreneurs, how many of them really understand how to read their p. L?

[B]

10 to 20%? Maybe if I had to give how.

[A]

To give a ballpark low. Yeah, yeah. And I think, I think that's really normal. I remember in my first few years, I had no idea. And I'm not a big numbers girl, so it's, it's something that I definitely shied away from for a long time. But I do think understanding your numbers is so incredibly important so that when you go to pay your taxes, you understand the landscape overall. But that's interesting. Okay, so as a business owner yourself, someone who you also sell courses, you run launches, you have digital products, how have you structured your business financially to support long term growth and peace of mind. I love this question because it's like, you know, all this stuff, you're in it, you're selling courses, memberships, all this stuff. So how have you structured your business financially to support that long term growth?

[B]

Well, personally, I'm a big fan of simplicity, so it might be more simple than some people think. But we. I teach a concept in my course that I just simply call the finance Friday routine. I love an alliteration. So if people like Mondays, we also, we can do a money Monday.

[A]

Oh, I love a money Monday.

[B]

Okay, love a money Monday. Um, I do personal finance money Mondays and business finance finance Friday days. But it's really just a checklist. And the number one thing is doing your bookkeeping on a weekly basis. So you stay on, stay on top of it. Check on unpaid invoices, check on contractor payments, check your credit card statement, your bank balance, your tax savings. I do all of that every Week. And then I also do a monthly process that I just call the monthly profit report, where I look at my P and L, I ask myself some questions. That one's more of like a journaling exercise. And then the more tangible stuff like setting up my S corp. We're going to talk a lot about that and just making key financial decisions.

[A]

Okay, so on Friday, what's it called again? Financial Friday.

[B]

Yeah, Finance Friday.

[A]

How long does that take you? All those things that you just listed.

[B]

Well, for me now my business does. I. Transparency is one of my core values. I do profit reports on my own podcast every month. So all of this is public. I'm on track to do about 400k this year. And I sell a lot of low ticket digital products in addition to my courses. So somewhat high volume of transactions. And I still can do it in about a half an hour a week.

[A]

Okay.

[B]

For a lot of our newer clients, it's like 10 minutes.

[A]

Oh, gotcha. Okay.

[B]

Yeah.

[A]

Because they don't have as many transactions. Okay, that makes sense. And then your money Monday. So that's where you're kind of doing the same thing, but with your personal expenses, right? Yeah, like that a lot. I don't necessarily want to look at all my personal purchases from Amazon this week, especially because it was just prime, so I might not do that. Yeah, that. That's a good one. Okay, so what's one deduction or tax strategy that almost no one is using, but that's completely legal. Got to make that clear here. Totally allowed. And could make a big impact right now.

[B]

Okay, I want to answer that question, but I also want to. I want to sidestep it a little bit. And can we talk about some things that people should not be deducting, please? Okay. Because I see this one. Are you on Tick Tock very much? I know that you. You do Tick Tock, but do you scroll on Tick Tock very often?

[A]

I hardly do Tick Tock. I scroll on it way too much.

[B]

Okay, same, same. My new ones, Amy, have been like watching people buy Birkins every day. I don't know what my problem is, but it's.

[A]

I've already gone through that one. Brayden. My new ones are stationary and journaling. But the Berkey one, I was very addicted to for a long time.

[B]

Okay, love that. That could maybe be a write off. We'd have to talk about that. But a big one. I see. I just saw this last week, so I had to bring it up. Do you know what a G wagon is? Yeah. Nice cars. Right. Okay. So if everyone can picture it, it's like the very square shaped Mercedes G wagon. There's this tax rule basically that if you buy a vehicle that's over a certain amount of weight, then you can fully write it off in your business. Yeah, as a tax tip all the time. But horrible business advice for most of us because A, it still needs to be used over 50% for business. Amy, what percentage of business miles do you think most people are putting on their cars when they have a course where they work out of a home office?

[A]

I mean, the tiniest. I haven't driven in a week, Brayden. So it's so small.

[B]

So small. So a lot of that stuff, like the too good to be true stuff. If it sounds too good to be true, it probably is. So that's one. I saw another one recently where this influencer did like this huge shopping haul to make TikTok videos herself. Not deductible if you're buying a bunch of Prada bags either. So I had to get that off my chest.

[A]

Okay, gotcha. I think I saw the same one you saw. So yeah.

[B]

Yeah, probably so. Some things people should be doing. Home office is a really big one. So if you have a dedicated home office, you need to make sure that you are reporting that that can be a good amount of tax savings contributing to your ira. So really simple, practical stuff, you get the tax benefits from your IRA and retirement savings. I'm writing off courses and programs, of course. So anything that you all buy from Amy should be tax deductible for your business. Nice little bit of it there. And then contractors are a really big one as well. So anytime you're paying someone to work on or on behalf of your business, really important as well.

[A]

Okay, good. But is there one that surprises people that they're like, oh, I didn't know I could do that?

[B]

Yeah. I will say a really fun one that I think most people don't know. It's not going to save you like a ton of money. But housekeeping. And I ring this up because, you know, I'm a little star guest in your slides.

[A]

Okay, wait, let's tell people what that means. So a while ago, Brayden has always been a star student of mine. And a while ago I said, okay, Brayden, what did you stop doing when you started to make money with your digital course? He's like, oh, easy. I hired a cleaning crew for my house. Like, I have housekeepers now or house cleaners. And I use that in a webinar for years because I loved it because a bunch of my students shared and yours was so good. So you can wait. I don't write that off.

[B]

Oh yeah, yeah, you, you can write part of that off. So yeah, I just came from like a four bedroom house where I had my, I was having my housekeeper come every week. Now I'm in a 500 square foot apartment now she comes once a month, but it's all included as part of your home office deduction. So when you get your home office deduction, it's really any kind of house maintenance. So the rent and then any utilities that go along with it. And the rationale for that is if I was going to go to a we work or any other commercial office, my rent would be paying for all of those things. So you only get a percentage of it. But still pretty cool.

[A]

Okay, good. I'm absolutely going to do that. And here at this house in Nashville, different than my Carlsbad house, which I know you've been to, is that I have like three big spaces upstairs. I call it the headquarters. So I think I could get a pretty good write off. So I did not know that one. I will be using it. And what's the one? I can't do this now because my son is older. But how people are paying their kids or to work in their business, what is that?

[B]

Yeah, so you can, I mean essentially you can hire your kids just like you would hire anyone else in your business and then you get to pay your kids, which is great because they make money instead of just giving them allowance, you make them work and then it's a business write off for you. Which is great because anytime you have a business write off, you're going to save income and self employment taxes.

[A]

Great.

[B]

But then the way the nuances of the rules work is like if they're under a certain age threshold, you can contribute it to their IRA and then it's tax deductible for them as well. So then it goes completely untaxed. And of course the rules to that are nuanced, but it's good stuff.

[A]

Gotcha. Okay, so let's zoom out just for a minute. A lot of business owners get stuck on this one question very early on. Can you please explain the difference between an LLC and an S Corp and why this decision really matters? And I hope Brayden, at the end of this, someone who's like, I have been so stuck on this, I've made a decision today on which one to go with.

[B]

Great. Well, I'm. I have to preface this with Amy I'm probably going to make you do a little bit of math, so I hope.

[A]

No, I. Terrible at math, Brayden, So just be careful on this one, okay?

[B]

Okay. Well, I'll do it out loud too, so everyone can follow along. The first thing is, a lot of people you have to understand that an LLC is really just a legal designation. It's not a tax thing. So when we start our businesses by default, like, let's say you're out there and you decide that you want to create your course, and you're like, I'm going to create a course, I'm going to start selling it. Now, you own a business, you're a business owner. You have an intent to make a profit. So if you don't go to any effort to form a business entity, you'd be deemed a sole proprietor. However, if you want to protect all of your personal assets from liability, you would form an llc, and the LLC is taxed the same as the sole prop. So you think everyone's with me so far?

[A]

Yes.

[B]

Okay, great. Now, once you have your llc, you can either just not do anything, in which case it's tax, tax the same as the sole prop, or you can fill out a form and mail it to the IRS to take advantage of certain tax codes to be taxed a little bit differently. Under subchapter S of our tax code, that's when we would say that you have an S corp, so you can actually form an LLC and be taxed as an S corp, or you can form a corporation and be taxed as an S Corp, but technically you would be an LLC taxed as an S corp in most circumstances.

[A]

I think that's exact. Not. I think that is exactly what mine is.

[B]

Yeah, yeah. Most. Most likely some people will do the corporation and the s Corp, but LLCs are easier to form, so that's what most of us will do. So that's kind of our setup. And the purpose of the S Corp is it allows all of us to pay ourselves the same way as these, like, big tech founders do. So, Amy, you're probably. You probably know that most of these guys, they take, like, kind of a modest salary and. And then they make most of their money off, like, their stocks and their distributions and all that kind of stuff. Right. So that's what we do in the S Corp. So here's where our math example comes in. Okay. Okay. We're gonna. We're gonna. We're gonna do it together, Amy.

[A]

Okay.

[B]

Okay. So you have $150,000 in revenue. So Revenue for everyone listening, that's all the money that comes into your business and then $50,000 in deductible business expenses. So what's our profit, Amy?

[A]

100.

[B]

100. Great. So we have a hundred thousand dollars. So pretty simple. If we do not have an S corp. So in other words, if we're a sole proprietor or an llc, the way our tax system works is that we pay all of our taxes based on that 100k in profit. So we have our tax brackets that we're probably all familiar with. But then we also have our self employment taxes, which is Medicare and Social Security. And that's a 15.3% tax. Okay, so we pay income tax, we pay 15.3% self employment tax on all of that profit in our business.

[A]

Hey, real quick, before we continue, a quick word about our sponsor. I've got to tell you about a really cool model that I'm a little bit obsessed with right now. So it's called the working genius model. And I'm telling you it's going to transform your work, your team and your life. And really it will do so by leveraging your natural gifts. So it's an assessment that I recently took. It takes like 10 minutes and the results you can apply immediately. You're going to discover how to increase joy and energy at work by understanding what your geniuses are. And it kind of blew my mind because I thought, this makes sense why I do some things and I hate doing them and then I do some other things and it fully lights me up. And it actually gave me permission to stop doing the things that totally drain me because now I understand why they drain me. So it's really good. So essentially you're going to get more done in less time with more energy and joy. Yes, please. Right. So you can get 20% off a $25 Working Genius assessment if you go to workinggenius.com and just enter the code marketing at checkout. So you're going to get 20% off. It's 25 bucks. It's worth every penny, but you'll get a discount. Go to working genius.com and enter the promo code marketing at checkout. Okay, let's get back to the episode.

[B]

Okay, so if we do an S corp, things are a little bit different because, Amy, you have an S Corp, right. And you don't have to tell us how much your salary is. I won't get that. Nosy. But you, you're on payroll, right? Because you're on your S corp. Yeah. So you pay yourself a Salary. I have an S corp, I pay myself a salary. So the way this works, we'll use the same numbers. So 150k in revenue, 50,000 expenses. We have 100,000 leftover. Now we're going to say in this example, we're going to put ourselves on a $60,000 salary.

[A]

Okay.

[B]

Which means after that 60,000, we have 40,000 leftover. Sense.

[A]

I'm with you.

[B]

Okay, great. So on that salary, we still pay both of those taxes. We pay the income tax, we pay the Medicare and Social Security or self employment tax. But on all the money left over because it's considered like a profit distribution, we don't have to pay Medicare and Social Security taxes.

[A]

Gotcha.

[B]

So in other words, we save that 15.3% on our $40,000 in profit, which could be about 6 grand in tax savings.

[A]

Great.

[B]

Yeah. Easy peasy, right?

[A]

It is. So, so with that, are you suggesting that most of my listeners, you're not giving tax advice? You're not their lawyer or their. What is it? I was gonna say tax guy.

[B]

Yeah, yeah, yeah. Not their, not their accountant, CPA or attorney.

[A]

Thank you. I was like, why can't I think of all those words? However, do. Would you advise that most people should look into the llc but through S Corp?

[B]

I wouldn't say most. I would say once you start making consistent revenue, you need to look into it. The kind of caveat here is that you have to pay yourself a salary because if you don't pay yourself a salary, I see this all the time. This is the biggest mistake that we see is people don't put themselves on payroll. And then if you're not on payroll, you pay $0 in a Medicare and Social Security. Like, do we think the IRS likes that very much?

[A]

Not.

[B]

No. So your salary has to be reasonable. We do some research as to what that means, but typically we're not going to see people do escorts and it actually makes sense until their profit is like 60 to $80,000 or six figures for sure.

[A]

Okay, that's so helpful. Okay, great. So for those listening, that's a benchmark that could be really valuable. Okay, good. All right. Well, I'm so glad you explained that part because it comes up a lot for sure. And I, I think you did a really great job explaining it in a way that I could understand. So thank you so much because this stuff doesn't come naturally to me.

[B]

Of course.

[A]

Okay, so how about this? Can you share a real world example of someone who made the S Corp switch and then saw major tax Savings?

[B]

Yeah, we have a few. So just in the past year we've had. I've had one client who primarily runs courses and memberships and things like that. I've worked with someone who owned a wedding venue and just recently like a publisher of digital downloads. So they've all kind of ranged in salary, but our course creator client, they were profiting over like $300,000. So that's after expenses. And we put them on a salary of around $120,000. And then after we got everything else set up, we got the retirement set up, all that good stuff, they were probably saving about 10 grand a year in taxes.

[A]

That's a lot.

[B]

Yeah. Okay, a lot. I mean that's like a few big vacations or, you know, like extra savings towards your down payment on your house or whatever.

[A]

Absolutely. Now, that story reminds me, I want to talk to you about paying yourself. That might be very new to some people. So walk us through how to pay yourself properly as an S Corp owner. Like, are you signing up for a payroll service? Because a lot of my. Not students. Well, students are listening too, but just my listeners in general, they don't have employees yet. And so they're not having a bunch of people on payroll. So how are they paying their selves? And also, what do most people get wrong with this and what are some of the long term consequences if not set up correctly?

[B]

Yeah, well, I want to back it up even a step before that, before people have S corps, because super common question. When you don't have an S Corp, you have no obligation technically, legally to pay yourself regularly, but it's still a really good habit. This is why the book Profit first by Mike Malowitz. I think you probably know him, you've probably interviewed him.

[A]

So funny you say that because today I literally traveled to go do an interview with him on a show he has called Becoming Self Made. So yes, I know him well.

[B]

That's amazing. He's fantastic. I highly recommend that book to everyone, but that's really kind of the core ethos is pay yourself first. So I just got off a client call before we started recording with a client who's making about $30,000 in revenue, 20,000 profit. And I encouraged herself just to start transferring $500 a month from her business to herself to build the habit of paying herself. And then we basically set up benchmarks for her to increase that amount by a few hundred dollars every six months or so until she gets to the point where she's paying herself enough to equal what a salary would be in an S corp and, and then she'll already have the habits in order to make the jump to do that. When she then forms the S corp, she's technically, it's like you're hiring yourself as your first employee. It feels very weird and silly at first, but you're going to use a payroll company. It's pretty much required that you do that. It's very difficult to do it without a payroll company, but it's like 50 bucks a month. And then you're going to pay yourself through payroll. Most people will do once a month. I like to do mine twice a month. I do it on the 1st and 15th. And it's pretty simple. I pay myself $3,500 through my payroll twice a month. So $7,000 a month in salary, which is where a lot of our clients are as well.

[A]

Okay. Okay. So that's helpful. And do you have a favorite software to use for payroll?

[B]

I use Gusto. I like it. Yeah, it's. It's pretty approachable. There are several other competitors out there as well, but Gusto is nice.

[A]

Okay. So at the beginning I started to ask you about common mistakes that you've seen your clients make and just people building online businesses. But I thought it might be kind of fun if you shared some of your biggest tax mistakes that you've made in your own business. And then what did it teach you so you could help other entrepreneurs? But I thought maybe I'd go first really quick. So one of the stupidest things I did, and at the time I just didn't know better, is that many, many years ago, I hired this woman who was going to build out a bunch of surveys in the infrastructure inside my email service provider to send out these surveys at different times throughout the year, whatever. Now these days you don't need something like that and AI can absolutely take care of it all. But back in the day it seemed complicated. But here's the mistake I made. It was near the end of the year and I heard in my ear, you should spend as much money as you can to get your tax write offs and stuff. So I needed to spend more. I spent $20,000, which is absolutely insane. Nor did she ever deliver, for the record. But it's that feeling of I better spend money to get these tax write offs or whatever. So I'm guessing you would agree that was probably not a good move.

[B]

Probably. And I'm glad you, I'm glad you gave that example though. It's a good lesson learned. We see this happen all the time. It's also why I it that's one of my pet peeves is when I see people say, see people market their services in order for people to get a tax deduction before the end of the year.

[A]

I've seen that. Yes.

[B]

Yeah. What will happen is like let's say you have $10,000 in your savings account and your business, which is great, but if you've not been paying your quarterly taxes and now you spend it all to get the tax deduction, it's like, okay, great, you spend the 10,000. That's probably only actually going to save you about $2,000 in taxes. But now you get your tax bill three months later and you don't have any savings to pay your tax.

[A]

Exactly. Yes.

[B]

Yeah. So we don't really want that to happen. Also a fun little note for everyone. This was. How many years were you in business at that point in time?

[A]

I probably was in business three years at that point.

[B]

So is it safe to say you were still in like a pretty, pretty sharp upward trajectory revenue wise?

[A]

Yes.

[B]

Yeah. So in that case, what we'll often see is your tax brackets increasing every year because your business is making more and more money. So really it would make better sense to get that deduction in January because you're paying a higher percentage of your income in taxes the next year because you're going to be in a higher tax bracket.

[A]

Oh, interesting. I never thought about it that way. Okay.

[B]

Yeah, fun to consider. Okay. Are you ready for my mistake?

[A]

I'm ready. I can't wait.

[B]

Yeah, mine was actually forming my S corp about two years too early.

[A]

Oh, okay. So what was the downside of that?

[B]

Yeah, so the downside was I had like a pretty good year and I was expecting to grow a certain amount the next year. So I went ahead and formed it. And long story short, I just wasn't bringing in enough revenue consistently to pay my own salary. And then there wasn't enough money left over to actually have profit to save that self employment tax on. So it probably didn't lose me a whole lot of money, but it didn't really net me that much anyway. Luckily, what I always tell my clients is knowledge is power. And when you know enough about taxes, you can kind of dig yourself out of little holes when you get into them, which is why I'm so big on education and my programs. So it wasn't that much of an issue for me. But if I hadn't already known that, it could have been, you know, it could have been a little bit of a bigger issue when I was making all sorts of mistakes with my payroll.

[A]

Okay, I hear you on that. Now, I think I should know this answer because I think you probably addressed it. But I thought if I have this question, maybe some of my listeners will. So. And it might. I might look like an idiot by asking this. So I'm just going to do it anyway. So if you formed your S corp two years too early, what do you. If you don't have an S corp, what do you have?

[B]

You would be either just a sole prop or a single member llc. So you would just be paying your taxes based on all your business profit.

[A]

So do you have to set something up or. No, that's just what it is. Until you set something up. Like an S corp. Yeah.

[B]

Do you know. So I have this little anecdote in my book and it's either I'll tell this joke whenever I do stage talks and it'll either get raucous laughter or a room full of crickets, depending on who my audience is. Have you seen that meme or gif of Mariah Carey when she was asked about JLO back in like 2004? Do you know what I'm talking about?

[A]

I do. And I, I feel like she said something like, who's that? Or I don't.

[B]

Yeah, she said, she said, oh, I don't know her.

[A]

Yes, yes.

[B]

And she's kind of famously like a little bit shady sometimes. But I always tell people the IRS is actually the same with regard to llc, right? So they don't recognize LLC is. They don't exist. They don't know about them. So until you have an S corp, you're just taxed as a sole proprietor in the eyes of the irs. So that's when, like the jump happens.

[A]

Okay, good to know. I'm glad I asked. Thanks. I bet I wasn't the only one who had it.

[B]

Okay, for sure.

[A]

Here's my final question before we wrap up. And you're going to tell people kind of a little bit about what you do in your services, just in case someone is in desperate need. So as we head into the year end, what's one action step someone could take this week to reduce their tax liability for next year, even if they're not switching to an S Corp yet.

[B]

Okay. So I'm glad you gave your example because what we're not going to do is spend money just for the sake of spending money.

[A]

Amen. Don't do it.

[B]

Don't do it. But there's two things we can do so the first one is just get your bookkeeping caught up if you haven't already done it, because inevitably it's one of those things where, like, the more you think about it, the more you're going to remember about that, like, random thing you spent money on earlier. So let's get that done. And then the second one, and this is something very proactive you can do, is if you haven't already, open a retirement account, because we have this fun little rule that you can actually make retirement contributions up until tax day to get the tax benefits.

[A]

Okay.

[B]

So, yeah, so you can make a contribution in, like, March to get the tax benefit in this tax year. It doesn't have to be by the end of the year, but the account has to be open by the end of the year. Oh, yeah. So what we'll often do is we'll tell people, save all your money for taxes. And then when you go talk to your tax repair, they might tell you you need to pay $7,000. And you're like, oh, great, I've saved 10,000. You can put that extra 3,000 into that retirement account that you've already opened.

[A]

Okay, that's good. The tip of open it now before the end of the year. That's great. I knew you'd come with the goods. I knew you just, like, lay it out for us in the simplest form because you are all about simplicity, which I do love, and so you just make it easy to understand. So tell people a little bit about where they could find you and. And just information about getting to you online.

[B]

Sure. So you can find all the information at.notav.law.com. my business name is not your average law firm, so. Not Average Law for short. Not abg Law dot com. You can learn about all of our offers on there. I am actually technically a tax attorney and a business lawyer, not a cpa. And so what that means is you'll find a lot of small business legal and tax solutions. And then I'm active on Instagram, Real big on threads. That's probably my favorite current platform. Really?

[A]

I don't know a lot of people that are real big on threads. Why do you like it so much?

[B]

Well, I want to say that I'm like, real popular on threads, but I just.

[A]

But just you like to use it a lot.

[B]

I like to use it because, as you can imagine, the stuff that I do is not inherently visual. So I don't like or I do like that I don't have to, like, go to Canva and, like, create a graphic Before I need to share my thoughts and ideas on there.

[A]

That's actually really smart. I love that. I do have, actually now I think about a lot of friends who get a lot of information from threads. So, yeah, I've booked a lot of.

[B]

Clients off of threads. I've booked clients off Tik Tok. You know, it's fun.

[A]

So where do they find you on threads?

[B]

Not AVG law. And then I also want to shout out my podcast to my book. Or should we give our swear warning? Amy?

[A]

Yes, there's a swear warning here, but I told him it's the name of the book so he could say, well, and you wrote.

[B]

You wrote the little blurb for the back of the books, so people gotta go check it out. Unfuck your biz. That's the name of my podcast and my book. Asterisk for the U. I got the trademark for that. A step by step framework to get all of your legal and tax shit legit. We walk everyone through that. And then, of course, Amy, I went through a digital course Academy, what now? Five, six years ago to create. To create that program.

[A]

So cool. I love to hear that and I love that we've been friends all the this many years. So, Braden, thank you so very much. That was very valuable. And I can't wait to just tell people every time I get tax questions. Oh, go to this episode. Go to this episode. So it's going to live on far beyond just in November. So thank you so very much for being here.

[B]

Thanks for having me.