Important Lessons Were Learned

llc's are not right for everybody but they can be super super useful so let's talk about some of the ways that llcs can benefit you but first you need to understand one important detail that i did not get when i started my business i thought that if i had an llc and if i put money into it or earned money with it and then left the money there and didn't take it out that i wouldn't have to pay taxes that was so wrong and i'm gonna explain why but first let's talk about what llc stands

for stands for limited liability company the whole point of an llc is to protect you from liability llcs do not change your taxes they don't change the way you're taxed they don't change the amount of money that you have to pay to the government every year they don't they are only a container let me explain a little bit more let's say that one day you decided to start cleaning your neighbors houses and you turned it into a business you never set anything up officially you just go over there and you clean their house you get

paid cash and you go home whether you like it or not you're a business but you have zero liability protection so let's say you go over to your neighbor's house and you accidentally break something and it falls on top of a giant grand piano that's worth tens of thousands of dollars and this homeowner gets pissed and they sue you well they can sue you for everything you've got everything that's in your bank account everything that your business is worth your house your retirement your pension because there is no layer of separation there and so we

use llc's to protect ourselves from liability liability meaning getting sued let me give you another scenario you decide to form an llc before you start cleaning houses and now you have katy's cleaning which is an llc you go and clean houses all that money gets deposited into your business bank account and then the same thing happens well guess what they can only come after what is within your limited liability company it protects you it separates the business from yourself so that if your business makes a mistake your personal assets are not up for grabs in

the lawsuit and that's why llcs are special so that's how llc's work they don't change your taxes they simply protect you here's another thing about llc's when you form an llc and you start doing business with it let's say you open up a bank account you get an ein and operating agreement you have it all set up even if you earn money with your llc it still counts as you earning money and that's because an llc is an extension of yourself it's not a separate thing it doesn't file its own taxes somebody's got to pay

taxes for the money that the llc makes and that somebody is whoever is getting the money from the llc if it's just you then you're on the hook for the taxes so keep that in mind leaving money in the llc doesn't work it's considered profit no matter what no matter where it ends up so you might as well transfer it to yourself first and spend it i mean it's not always a good idea but for sake of discussion so remember that llcs don't change your taxes they're an extension of yourself you are your business and

your business is you now that we've gotten that out of the way let's talk about some of the benefits and some of the nuances about llc's because i know i'm going to get these questions husband and wife do they need to be on the llc together or can it be just one of them well the irs looks at husband and wife as one entity as one person as one tax filing and that's if you're married and filing jointly if you're separate separated or you don't file jointly you'll both want to be on the llc but

if you're married and filed jointly either one just double check and make sure that your state laws consider it to be community property like california so look into that before but most of the time husband and wife don't have to be on the llc together let's talk about partners what do you do with partners how do you form an llc with more than one person well typically when you would form an llc by yourself it would be considered manager managed or a single member llc which is totally fine i've got a bunch of single member

llc's but i also have member managed llcs and that's what you form when you have more than one person in an llc let's say that myself and my business partner stephen decide to start a tax planning agency which we've done by the way what we've done is we formed an llc together it becomes a member managed llc and so when the money comes into the llc some of the profits go to each of us so technically it's considered a partnership it's an llc that's taxed as a partnership and so steven will pay taxes on the

money that he gets and i will pay taxes on the money that i get and so when you form an llc with more than one person it automatically becomes taxed as a partnership but how do llcs become taxed when it's just one person the answer is a sole proprietor as one person as a single member sole proprietor taxation is the same as a single member and i have more videos on that if you want to see them so we're not going to go too much further just wanted to touch on it for you in the

beginning of the video i mentioned that llc's aren't right for everybody and that is 100 true not everybody needs to go form an llc right away when they start a business sometimes it makes sense just to start out as a sole proprietor what that means is just start doing business because when you start doing business activity like if you just start making and selling hot dogs or t-shirts you're in business in the eyes of the irs there's no like official way to go into business you just start doing it and it's all about how the

money flows so my recommendation is if you're just trying something out just start it and see if it works keep the business money separate from the personal money at the bare minimum but you don't have to get an llc right away if it starts to take off and you get to a point where you're making a thousand dollars a month with this side hustle or this business then you can go get an llc the reason i say form an llc when you're making a thousand dollars a month is because remember llcs only protect you they

don't change your taxes and when you're making a thousand dollars a month you actually have something to protect that's why i think that a thousand dollars a month is a great threshold for forming an llc but where do i form the llc that's a great question you want to form the llc in the state that you're actually doing business wherever your business address is that's where you need to form the llc so if you have a physical location in california you have to form an llc in california however if you're a consulting company or you

do like remote work and you don't have an official business address just your home address you could technically form an llc in another state if you wanted to take advantage of another state's laws but like i said before it's not going to affect your taxes you're going to pay taxes in the state that you live so before you start adding complications to solve problems that don't exist think about what will be the easiest and the most manageable for you trust me i've made those mistakes before they're not always necessary if you want to form an

llc i'll leave a link in the description below so you can get to inc file they're the best place to form an llc for sure lastly let's talk about the most important thing for an llc and that's your operating agreement llcs need rules we have to understand you know what to do if our partners have a disagreement or what to do if we die or what to do if we sell the business or what to do if we decide to bring on a partner or they want to give us ten thousand dollars for ten percent

of our company how do we make those changes it's all done in the operating agreement the operating agreement is the rules for your llc you can make a simple one-page operating agreement or you could have a 25-page operating agreement it depends on how complicated you want to get but it's you who set the rules for your llc so if you want to add someone to your company let's say they gave you ten thousand dollars for ten percent you would write into your operating agreement that they gave you ten thousand dollars for ten percent share of

the company they have ten percent weighted decisions if we ever have a disagreement you know we will strike three attempts at mediation in person before we go to any type of litigation or arbitration there's all kinds of things that you can do you can be as creative or as basic as you want to be but an operating agreement is really important and most people totally forget about it now if you forget about the operating agreement you're going to default to the state's operating agreement and we do not want to do that because the state's operating

agreements are not written in your favor and it won't help you in any way so if you don't have an operating agreement or you don't have the ability to go online and get one made go to my website and you can download it for free vanader.com and the coupon code is i don't want to pay you if you check out using that code you should be able to get it for free and then you can use it in your business feel free to share it with anybody you like because i just want people to have

operating agreements for their llc's it's so important now once you have an llc there are some benefits that a lot of people haven't considered an llc is like the base foundation layer that will allow your company to grow off of if you're just a sole proprietor and you haven't formed an llc yet that's about as far as you can level up but if you form an llc you're able to level up a lot further here's what i mean by that llc's can change the way that they are taxed to s-corps so you can still maintain

your llc but once you start making fifty thousand dollars a year in profit you can change the status of your llc to s corp so it becomes an llc taxed as an s corp by doing that it allows you to start playing the game like a big business and big businesses pay less in taxes there's a few hoops we've got to jump through like payroll and bookkeeping and meeting minutes and things like that but it's worth it because the tax savings are huge it allows you to avoid self-employment tax which is a killer we're not

going to get into that in this video but if you're interested you can watch this video right here now if you want to make changes to your llc all you have to do is update your operating agreement it's really that simple the state has made it very very easy for you to change your company and change your business and change the way you do things the most important thing however is how the money flows whose bank account is it ending up in and are you paying taxes on the money that you've earned that's really important

now last thing let's talk about how to get rid of an llc in case you made a mistake and you don't want it anymore llcs can be dissolved by filing articles of dissolution basically you go to the state and you say hey i don't want this llc anymore can you dissolve it and make it go away and you file a piece of paper for five to twenty dollars and they make the llc go away now it no longer exists now it's your job to cancel your ein your employer identification number and also close down your

bank account everything else related to it llcs are super super simple and they are a great way for business owners to build a solid foundation protect their assets and eventually change their taxes but remember llcs don't change your taxes you are your llc and your llc is you if you like the way that i teach i have a business school where i have hundreds of students that are learning from me on how to start their businesses right now we have a coupon code which is new habits type that in and you will get 500 off

i would love to have you if you have any other questions please drop a comment below or dm me on instagram i get back to everyone keep educating be good to future you