Happy 2023, baby!
New year, new ‘tude, new you, and maybe…new business?
It’s not unheard of for people to start off a new year by going through with those business ideas and plans that they wanted to do or begin the previous year. In fact, according to the Commerce Institute, 1.45 million new business applications were submitted during the first quarter of 2022.
That was a 33.5% increase from 2020 and 31% increase from 2019!
And what that shows, to me at least, is that people feel more confident in pursuing their business ownership or entrepreneurial goals and dreams. And that’s fantastic!
Obviously, if you’re reading this blog, not only are you a part of the growth of new business owners, but you’re pursuing the investment path as a real estate wholesaler.
And as any business owner will tell you, and what I’m about to tell you as well, is one of the most important and crucial things you need to do is set up your business structure correctly.
LLC vs S Corp Business – Which is Better?
Now before we start talking about business structures and tax advantages, I have to state that I am, in no way, a tax professional. Any and all thoughts I have on this matter are from personal experience and from what I’ve heard from other wholesalers.
So, here we go.
As a new business owner, you’ll very likely run into the question of what kind of business structure you want your business to have.
A business structure is a legal structure of an organization and is a key determining factor when it comes to raising capital, responsibilities and obligations, and of course, the amount of taxes that a business pays.
There are four major types of business structures:
Sole proprietor
Partnership
Corporation
Limited Liability Company (LLC)
For our purposes, we’ll be looking at two of these – the S Corp, which is a subcategory of the corporation structure, and the LLC.
What is an S Corp?
As mentioned, an S Corp is a type of corporate business structure, which gives the business a separate legal entity from the owners.
The advantage of using an S Corp is that you have the ability to raise capital and it comes with limited personal liability to protect owners against debts, liabilities, and business obligations.
What is an LLC?
An LLC is like a hybrid structure between partnerships and corporations. It provides personal liability protection to owners and reduces both business taxes and requirements.
LLCs are a popular choice for small business owners or entrepreneurs because of this.
Now when it comes to which one you decide to go with, well, that’s a bit trickier and it’s something I discussed on one of my recent coaching calls:
Both an S Corp and an LLC offer tax benefits and advantages, depending on your state laws regarding these two.
In my experience, creating an LLC and then being taxed through an S Corp structure was the most tax-efficient way to operate as a wholesaler, based on the laws we currently have in Arizona.
Again, this is based on my own experience, so this may or may not work for your business as well. As with anything that deals with business structure or business taxes, I highly recommend consulting a tax professional.
For me and the members of AstroFlipping, our go to place is Prime Corporate Services; they are the premier company to help new and current businesses ensure that their businesses are set up correctly and can help you understand everything about business taxes.
You’re already starting 2023 off with a bang by building and growing your business, so make sure you do it correctly and with the right business structure. And as always, if need support or guidance on wholesaling or setting up your business, come and join us at Astro!