December 14, 2025 • 19 mins
It’s the Positively Pipeman weekly segment of The Adventures of Pipeman.
When you start a business, selecting your legal structure is one of the first, and most important, decisions you have to make. The structure you choose will have a significant impact on the operation and management of your business, as well as your personal liability as the business owner.
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Take some zany and serious journeys with The Pipeman aka Dean K. Piper, CST on The Adventures of Pipeman also known as Pipeman Radio syndicated globally “Where Who Knows And Anything Goes.”
Positively Pipeman hosted by Dean K. Piper, CST features other international authors, speakers, trainers, advisors, coaches and other experts here to help you in business & personal life including Self-Help, Motivation, Business, Marketing, Empowerment, Spiritual, Inspiration, Health & Wellness, Relationships, Goal Setting, Belief Systems, Mindset, Sales, and so much more on your journey to Success, Freedom, and Happiness!
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When you start a business, selecting your legal structure is one of the first, and most important, decisions you have to make. The structure you choose will have a significant impact on the operation and management of your business, as well as your personal liability as the business owner.
Click Here to Subscribe to The Adventures of Pipeman for PERKS, BONUS Content & FREE GIVEWAYS!
Take some zany and serious journeys with The Pipeman aka Dean K. Piper, CST on The Adventures of Pipeman also known as Pipeman Radio syndicated globally “Where Who Knows And Anything Goes.”
Positively Pipeman hosted by Dean K. Piper, CST features other international authors, speakers, trainers, advisors, coaches and other experts here to help you in business & personal life including Self-Help, Motivation, Business, Marketing, Empowerment, Spiritual, Inspiration, Health & Wellness, Relationships, Goal Setting, Belief Systems, Mindset, Sales, and so much more on your journey to Success, Freedom, and Happiness!
Would you like to be a sponsor of the show?
Would you like to have your business, products, services, merch, programs, books, music or any other professional or artistic endeavors promoted on the show?
Would you like interviewed as a professional or music guest on The Adventures of Pipeman, Positively Pipeman and/or Pipeman in the Pit?
Would you like to host your own Radio Show, Streaming TV Show, or Podcast?
PipemanRadio Podcasts are heard on Pipeman Radio, Talk 4 Media, iHeartRadio, Pandora, Amazon Music, Audible, Spotify, Apple Podcasts, and over 100 other podcast outlets where you listen to Podcasts.
The following are the different podcasts to Follow, Listen, Download, Subscribe:
•The Adventures of Pipeman
•Pipeman Radio
•Pipeman in the Pit – Music Interviews & Festivals
•Positively Pipeman – Empowerment, Inspiration, Motivation, Self-Help, Business, Spiritual & Health & Wellness.
Click Here to Subscribe for PERKS, BONUS Content & FREE GIVEWAYS!
Follow @pipemanradio on all socials & Pipeman Radio Requests & Info at www.linktr.ee/pipemanradio
Stream The Adventures of Pipeman daily & live Mondays, Tuesdays, Wednesdays at 1PM ET on W4CY Radio & Talk 4 TV.
Download, Rate & Review the Podcast at The Adventures of Pipeman, Pipeman Radio, Talk 4 Media, iHeartRadio, Apple Podcasts, YouTube & All Podcast Apps.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:04):
Hi, you have done too sure wow for you your.
Speaker 2 (00:19):
This is the pipe Man here on the Adventures pipe
Man W four c Y Radio, where weekly we have
the Positively pipe Man segment and we feature in that
segment powerful business strategies from Michael Barbarita. So let's welcome
Michael to the show once again. How are you doing great?
Speaker 1 (00:38):
Well? I want to I want to apologize. Last week
I didn't wish you merry Christmas.
Speaker 2 (00:43):
Oh yeah, well I'm Jewish, So a couple of weeks
ago you missed wishing me a happy Honikah.
Speaker 1 (00:49):
They see that. There you go, that's what I missed.
There you go. But I'm gonna wish you happy new
yet coming up. So I believe the year is over.
Speaker 2 (01:01):
It's just had to believe how they go quicker every
single year, like it just amazes me. Wasn't it just January?
Speaker 1 (01:10):
Yeah, I'm confused, It's really amazing. But yes. So today
I'm going to talk about legal structure and business structure
because when you start a business, selecting your legal structure
is you know, a billion It's an important decision because
the structure you choose will have a significant impact on
(01:32):
the business operation itself. The management of your business as
well as taxes and personal liability as the business owner.
And I'm not a lawyer, as you all know so,
and I don't pretend to be one here on the radio,
but I do want to talk about legal structures as
to my understanding of them and the best way to
(01:54):
utilize them.
Speaker 2 (01:55):
It is important then most people do not understand them.
There are a variety of choices, and most a lot
of people make the wrong choice, right, and so.
Speaker 1 (02:05):
The the the three there's three as I see it,
there's three basic entities. There's your sole proprietorship, there's a corporation,
and a partnership. So let's focus just on those three.
And of course there's different forms of a corporation, there's
different forms of a partnership, but let's talk about them
one at a time. So, a sole proprietorship is actually
(02:28):
a business formation that does not protect you from personal liability. However,
the use of a sole proprietorship comes in most effectively
is when you're just starting your business and you're seeing
if it's going to work out. Because if you're just
starting a business, you're under the you're under the lawsuit
(02:49):
radar for the for the most part You know, you're
just starting out, and so instead of incurring all the
costs of setting up a corporation or a partnership, you
just want to test out your business to see if
it's going to be something you're gonna stay with. Say,
if it's something, it's you know, that's gonna work for you,
it's not to make money, and if it is, then
you's stop. Then you have to get out of that
structure because that structure affords absolutely no personal liability protection.
(03:16):
It's you know, if so if somebody, and.
Speaker 2 (03:19):
Higher taxes, higher tax right, and higher taxes as well.
Speaker 1 (03:22):
Because it's all on your personal tax return, there is
no flexibility as there is with other structures. So, uh,
you know you're gonna pay self employment tax. You're gonna pay, Uh,
you're gonna pay the regular income tax. In addition to
that self employment tax is fifteen point roughly fifteen point
(03:43):
four percent. Uh you're paying where as an employee, you
only pay half of that. The other half is paid
by the employer. And since you're sole proprietorship, you're considered
an employer and that's why you're paying fifteen point four Yeah,
but the only way I recommend sole proprietships is if
you're just starting the business, you don't know if it's
gonna go north or south, and you're under the legal radar,
(04:07):
you're not taking a lot of risk, you know, You're
not like, for example, you're not giving what are they
called when you they put they imprint the skin? What
is that called tattoo? You're you're not a tattoo paala
all right, because if you while, that would probably present
itself with a liability even for your first customer. So,
(04:30):
but for the most part you're under the radar, then
a sole proprietorship is probably your best choice until you
start saying, you know what I'm gonna. I'm committed to
this business. Now I'm gonna I can see myself making
money in it. It's a profitable venture. Now it's time
to start to look into probably a corporation.
Speaker 2 (04:52):
And I'm also a big believer and you might agree,
might not, that it should never be a soul prop.
There are other ways to do it as a sole
prop without the liability, you know, and you can always
switch later. For instance, if you do a single member LLC. Right,
that's basically a sole prop, but without the liability.
Speaker 1 (05:14):
Right, No, that's right. Is exactly that the single member
LLC is a sole proprietorship without the liability. But you
are paying that, you know, you are paying that self
employment tax, so it's not in full. So it's not
really that that kind of as favorable as structure. But
but it is a liability protection. So if I was
(05:35):
a tattoo poll, that's exactly how I would set it up.
But once again, I'm paying a five hundred dollars annual fee.
I'm paying, I'm you know, you know, I'm paying for
an extra schedule in my tax return. Well, actually you're not. No,
you're gonna be paying You're gonna you're gonna have this
the extra schedule anyway, but you're gonna be paying that
that the membership fee, and you're gonna have to hire
a lawyer to get to develop that and so that
(05:57):
if you're not really sure if your business is going
a fly, that's when I that's when I do recommend
a sole proprietorship. But you're right, you can eliminate the
personal liability to be a single member LLC.
Speaker 2 (06:11):
I'm just a believer that I'll spend the money to
begin with to protect my liability because it only takes
one one lawsuit, and that's right. You know, it was
worth paying whatever you had to pay to believe.
Speaker 1 (06:22):
That's right, And that's very true. And so a corporation, though,
is that next step that gives you the liability protection,
plus it can give you some tax what I'm gonna
call tax flexibility. So first of all, there are three
There are two types of corporations, and then there's the LLC,
(06:45):
and I'll explain. You have an S corporation, a sub
chapter S corporation, which in my opinion, is the most
favorable structure from a tax standpoint and gives you the
liability protection.
Speaker 2 (06:57):
At the same time, especially if you're a small business.
Speaker 1 (07:00):
Right, that's right, And a C corporation is really, I
believe to be unfavorable because there's double taxation. It's very
difficult to sell a C corporation and it's it's it's
only utilized in rare cases for a small business. And
(07:23):
I can tell you I made the mistake back in
nineteen eighty four to be a C corporation, and I
had to do a lot of work to get out
of it and turn myself into an S which ended
up being favorable. But it's it's it's a lot of
work time, energy efforts expense. You might as well be
an S corporation right off the bat. Now, an S
(07:47):
corporation is called a pass through entity, which means the
profit gets passed through to the business owner's personal tax
return and gets taxed at the business owners uh uh
individual tax rate.
Speaker 2 (08:04):
So that you know that.
Speaker 1 (08:06):
So, but the beautiful thing about that is is that
that profit of the S corporation is not subject to
unemployment tax or self employment tax. I should say it's not.
It's not seven to self employment tax. And as a result,
you can actually by managing it properly, it's going to
be managed. This flexibility, the flexibility has to be managed,
(08:29):
and by managing it properly, you can reduce your tax
liability with that subjec SUBS corporation. Now you have to
remember that a subcurp anes coop you have to have
a reasonable salary. You have to make a reasonable salary
and be on the payroll. Otherwise you're abusing uh the
U S corporation's advantages.
Speaker 2 (08:50):
And that and that's where you that's where you appeerce
to corporate vail and you are personally liable if you
don't do that, that's.
Speaker 1 (08:57):
Right, because what happens is is you have to make
sure that when you're a corporation, whether it's an S
corporate or C corp, that you have to be fiduciarily
responsible in every way so that the courts can clearly
see that there's two entities, the corporation and the person.
If you don't separate that, if you commingle funds and
(09:19):
do all that nonsense, that a good lawyer is going
to break the corporate veil.
Speaker 2 (09:24):
Yeah, and you're going to get in no trouble totally.
Speaker 1 (09:27):
So you've got to be really diligent about the management
of a SUBS corporation or ESC corporation.
Speaker 2 (09:32):
By the way, and a perfect example of that is
which people wouldn't even think of. If you pay one
of your vendors with personal credit card, you have just
pierced the corporate veil.
Speaker 1 (09:43):
That's right. The an opposing attorney will have a field
day with that one. Yeah, yeah, because you're being the
same person. The key is to make the corporation separate
from the individual.
Speaker 2 (09:56):
Yes.
Speaker 1 (09:57):
And so then there's this thing called an LLC, which
is a limited liability company, which we've already touched upon.
You could be a single member LLC. You could be
a partnership and and have it and have and be
an LLC, but you're going to be taxed as a partnership.
See the LLC. You can be taxed in a variety
of ways. You could be an S corporation in an LLC,
(10:20):
which I don't recommend, and that way your tax is
an S corporation. You could be an LLC and a
sole proprietor and that is when that's protecting you from
the personal liability side. But you're being taxed on your
individual tax return, and then you'd be you could be
a partnership taxes. Uh, I'm sorry. An LLC tax is
(10:41):
a partnership. So an LLC gives you the flexibility of
being taxed in different ways. Yeah, all right, So that
that's the advantage of it of an LLC. My favorite,
my favorite structure is still an S corporation because it
gives you the most flexibility from a tax standpoint, and
I call it flexibility. It doesn't eliminate tax, but it
(11:02):
gives you flexibility because of the profit from the S
corporation is not subject to self employment tax. So give
it all these structures my favorite, and of course that's
what my company is, is an S corporation. But like
Dean said, you have to be very diligent when you're
(11:24):
a corporation. Otherwise, if you're commingling funds, you're using personal
credit cards, all of that nonsense that you're gonna look
like a you're gonna look like the corporation and the
individual is one of the same, and you're gonna lose
every lawsuit with with a reason with a reasonable competent
attorney on the other side.
Speaker 2 (11:44):
And a lot of people do, okay, because they don't
understand this. They set up an S corp and then
they pay all their personal bills through the S corps
so they can quote unquote, you know, bring down their income.
But again, your deductions are not your personal bills. That
(12:06):
improper taxation that is deemed income. So if you have
your personal home rent, let's say, without using home home deductions,
which I never recommend anyway, but uh, you know you
are going to you have just pierced to corporate veil,
(12:27):
and it looks like you're just trying to take advantage
using the S corp to avoid paying taxes by getting deductions.
You would never get yeah, okay, and so yeah, this
was sometow I was taught very early, like eighteen years old, like,
(12:48):
no matter what, do not commingle and what commingling means.
Some people think commingling just means commingling the money. That's
why I brought up the concept of the personal credit cards.
It's not just commingling the money. It's actually using the
corporation to fund your personal lifestyle.
Speaker 1 (13:07):
And big no, big no no, You're gonna get nailed
and and all the value that the corporation has to
protect you is gone. The other the other misnomer people
have is that when they sign a personal guarantee for
a loan, even if it's a sebass corporation, it's still
personally liable on that when you the corporation protects you
(13:30):
from personal liability from the outside. But if you're signing away,
you're right and and and becoming personally liable for a
bank loan or a lease or even a vendor. Uh
that makes you sign personal guarantees, which I'd be very
cautious about, by the way. Uh, that just you you
are personally liable regardless of what kind of structure you have.
(13:53):
When you sign a personal guarantee.
Speaker 2 (13:55):
I was taught that too a young age. Don't ever
sign a personal guarantee. What's the what's the point of
getting a business loan if you're going to sign personal guarantee.
Speaker 1 (14:08):
Theoretically, there's no point. The problem is is that banks
are just being real difficult these days and requiring it
on everything. And when business owners need a line of credit.
Speaker 2 (14:18):
You know that that's the unfortunate part because they are
requiring more now than ever because ever, yeah, it was
never a case back in and back in the day,
and now like it defeats the whole purpose of having
a corporation. It's personal guarantee.
Speaker 1 (14:35):
That it does. It does, but at least it limits
you know, the outside suit lawsuits.
Speaker 2 (14:40):
But that's true.
Speaker 1 (14:41):
But but you know, but but but on the other hand,
you're right, uh, you know, people sign away. I you
know that I have clients that have personal guarantees with
vendors that are thirty years old, and I'm telling them
to go back and get that personal guarantee and rip
it up because you know, if something happens, you know,
(15:02):
imagine being loyal to a vendor for thirty years and
then they go after you personally because they got this
personal guarantee and you're happen to hit a ruck patch.
I mean, it's just scary. So you know, you're never
signed personal guarantees really now applies with exclamation points to
suppliers try to get them when especially when you're just starting.
Speaker 2 (15:24):
Out, well, like you're talking about the banks and credit
and stuff. To me, you know, it's like, if you're
going to sign personal guarantee, you just might as well
get the credit personally. Because here's the problem people don't
think about. If you're getting a business loan based on
your done in Bradstreet score and you do a personal guarantee,
(15:48):
you have all the negatives and none of the positives.
But because you're not you're building your business cred but
you're not building your personal credit. But your personal credit
could get affected negatively. So if you're going to have
where you might get affected negatively on your personal credit,
you might as well get the positive part of it
and have it being a personal credit so you're getting
(16:12):
that on your credit report. That's my opinion at least,
Like you know, it's a yeah, you don't want to
personal credit for your business, But in the same token,
if you're personally guaranteeing. That means you pray, basically are
without any of the benefits. In my opinion, yeah, it's
very true.
Speaker 1 (16:32):
It's a dangerous it's a dangerous part of being a
business owner of these personal guarantees. That's for Don Shure. Yeah,
you know, you should make sure you have homesteads on
your house and and and all, you know, and maybe
put the put your house into trust. All those types
of things can protect and you should go to a
state attorney or or an attorney to you know, protect
(16:55):
yourself because because if you run into trouble and then
you start to acting yourself, it's it's these are fraudulent
conveyances that occur and you're just going to get into
more trouble. So be proactive and trying to protect your assets,
no doubt.
Speaker 2 (17:11):
So.
Speaker 1 (17:12):
One of the things I like to offer your audience, Dean,
is a workbook called Legal Structures, and it's an actual
implementation workbook to help help the business owner understand what
the best legal structure is and how to go about
it and why and so in order to get that,
you go to NeXTSTEP CFO dot net. You hit the
(17:32):
contact button, you fill out the contact form and in
the message box simply put legal structure workbook and I'll
send that to you free change.
Speaker 2 (17:41):
Nice. I love it, and yes, this is a very
important subject. I'm glad we covered it because I can't
tell you how many people I know go into business
and they have no idea about any of this stuff.
I don't even know what makes them think they should
go into business without doing some research and knowing your
legalities and your life abilities and all that. But they do.
(18:02):
But they do, and they they they think certain things,
you know, but that's not reality because they took It's
like everything nowadays. They talk to their their buddy, or
like when somebody posts something on social media and I
know it's not true. I'm like, it's that pure reviewed
And the answer I get is, oh, yeah, all my
(18:23):
friends agree with me. No, no, and all your friends
should agree with you and your business decisions either because
they're not going to pay the price. You will. But
thankfully because of people like you, Michael, people can seek
out your expertise, your assistance so that they don't have
(18:45):
to pay the price.
Speaker 1 (18:47):
And it's a sision is ultimately the decision is ultimately
as what's structured.
Speaker 2 (18:51):
It yeah, and how much how much they want to yeah,
and how many to take exactly. Well, again it's been
this is great information, especially heading into New Year, because
taxes are coming, okay, and you'd better be in the
(19:12):
right legal structure for that. And so reach out to Michael,
get the free workbook and you know, see what Michael
can do for you. And once again, Michael, thanks for
being on the Adventures of.
Speaker 1 (19:25):
Pipelin and I wish you happy to you.
Speaker 2 (19:28):
Yeah, it's a matter of fact. I was just gonna say,
and I'll.
Speaker 1 (19:33):
See you next year, all right, excellent, thank you, bye
bye bye.
Speaker 2 (19:39):
Thank you for listening to the Adventures of Pipelin.
Speaker 1 (19:43):
I'm w for CUI Radio.
Hi, you have done too sure wow for you your.
Speaker 2 (00:19):
This is the pipe Man here on the Adventures pipe
Man W four c Y Radio, where weekly we have
the Positively pipe Man segment and we feature in that
segment powerful business strategies from Michael Barbarita. So let's welcome
Michael to the show once again. How are you doing great?
Speaker 1 (00:38):
Well? I want to I want to apologize. Last week
I didn't wish you merry Christmas.
Speaker 2 (00:43):
Oh yeah, well I'm Jewish, So a couple of weeks
ago you missed wishing me a happy Honikah.
Speaker 1 (00:49):
They see that. There you go, that's what I missed.
There you go. But I'm gonna wish you happy new
yet coming up. So I believe the year is over.
Speaker 2 (01:01):
It's just had to believe how they go quicker every
single year, like it just amazes me. Wasn't it just January?
Speaker 1 (01:10):
Yeah, I'm confused, It's really amazing. But yes. So today
I'm going to talk about legal structure and business structure
because when you start a business, selecting your legal structure
is you know, a billion It's an important decision because
the structure you choose will have a significant impact on
(01:32):
the business operation itself. The management of your business as
well as taxes and personal liability as the business owner.
And I'm not a lawyer, as you all know so,
and I don't pretend to be one here on the radio,
but I do want to talk about legal structures as
to my understanding of them and the best way to
(01:54):
utilize them.
Speaker 2 (01:55):
It is important then most people do not understand them.
There are a variety of choices, and most a lot
of people make the wrong choice, right, and so.
Speaker 1 (02:05):
The the the three there's three as I see it,
there's three basic entities. There's your sole proprietorship, there's a corporation,
and a partnership. So let's focus just on those three.
And of course there's different forms of a corporation, there's
different forms of a partnership, but let's talk about them
one at a time. So, a sole proprietorship is actually
(02:28):
a business formation that does not protect you from personal liability. However,
the use of a sole proprietorship comes in most effectively
is when you're just starting your business and you're seeing
if it's going to work out. Because if you're just
starting a business, you're under the you're under the lawsuit
(02:49):
radar for the for the most part You know, you're
just starting out, and so instead of incurring all the
costs of setting up a corporation or a partnership, you
just want to test out your business to see if
it's going to be something you're gonna stay with. Say,
if it's something, it's you know, that's gonna work for you,
it's not to make money, and if it is, then
you's stop. Then you have to get out of that
structure because that structure affords absolutely no personal liability protection.
(03:16):
It's you know, if so if somebody, and.
Speaker 2 (03:19):
Higher taxes, higher tax right, and higher taxes as well.
Speaker 1 (03:22):
Because it's all on your personal tax return, there is
no flexibility as there is with other structures. So, uh,
you know you're gonna pay self employment tax. You're gonna pay, Uh,
you're gonna pay the regular income tax. In addition to
that self employment tax is fifteen point roughly fifteen point
(03:43):
four percent. Uh you're paying where as an employee, you
only pay half of that. The other half is paid
by the employer. And since you're sole proprietorship, you're considered
an employer and that's why you're paying fifteen point four Yeah,
but the only way I recommend sole proprietships is if
you're just starting the business, you don't know if it's
gonna go north or south, and you're under the legal radar,
(04:07):
you're not taking a lot of risk, you know, You're
not like, for example, you're not giving what are they
called when you they put they imprint the skin? What
is that called tattoo? You're you're not a tattoo paala
all right, because if you while, that would probably present
itself with a liability even for your first customer. So,
(04:30):
but for the most part you're under the radar, then
a sole proprietorship is probably your best choice until you
start saying, you know what I'm gonna. I'm committed to
this business. Now I'm gonna I can see myself making
money in it. It's a profitable venture. Now it's time
to start to look into probably a corporation.
Speaker 2 (04:52):
And I'm also a big believer and you might agree,
might not, that it should never be a soul prop.
There are other ways to do it as a sole
prop without the liability, you know, and you can always
switch later. For instance, if you do a single member LLC. Right,
that's basically a sole prop, but without the liability.
Speaker 1 (05:14):
Right, No, that's right. Is exactly that the single member
LLC is a sole proprietorship without the liability. But you
are paying that, you know, you are paying that self
employment tax, so it's not in full. So it's not
really that that kind of as favorable as structure. But
but it is a liability protection. So if I was
(05:35):
a tattoo poll, that's exactly how I would set it up.
But once again, I'm paying a five hundred dollars annual fee.
I'm paying, I'm you know, you know, I'm paying for
an extra schedule in my tax return. Well, actually you're not. No,
you're gonna be paying You're gonna you're gonna have this
the extra schedule anyway, but you're gonna be paying that
that the membership fee, and you're gonna have to hire
a lawyer to get to develop that and so that
(05:57):
if you're not really sure if your business is going
a fly, that's when I that's when I do recommend
a sole proprietorship. But you're right, you can eliminate the
personal liability to be a single member LLC.
Speaker 2 (06:11):
I'm just a believer that I'll spend the money to
begin with to protect my liability because it only takes
one one lawsuit, and that's right. You know, it was
worth paying whatever you had to pay to believe.
Speaker 1 (06:22):
That's right, And that's very true. And so a corporation, though,
is that next step that gives you the liability protection,
plus it can give you some tax what I'm gonna
call tax flexibility. So first of all, there are three
There are two types of corporations, and then there's the LLC,
(06:45):
and I'll explain. You have an S corporation, a sub
chapter S corporation, which in my opinion, is the most
favorable structure from a tax standpoint and gives you the
liability protection.
Speaker 2 (06:57):
At the same time, especially if you're a small business.
Speaker 1 (07:00):
Right, that's right, And a C corporation is really, I
believe to be unfavorable because there's double taxation. It's very
difficult to sell a C corporation and it's it's it's
only utilized in rare cases for a small business. And
(07:23):
I can tell you I made the mistake back in
nineteen eighty four to be a C corporation, and I
had to do a lot of work to get out
of it and turn myself into an S which ended
up being favorable. But it's it's it's a lot of
work time, energy efforts expense. You might as well be
an S corporation right off the bat. Now, an S
(07:47):
corporation is called a pass through entity, which means the
profit gets passed through to the business owner's personal tax
return and gets taxed at the business owners uh uh
individual tax rate.
Speaker 2 (08:04):
So that you know that.
Speaker 1 (08:06):
So, but the beautiful thing about that is is that
that profit of the S corporation is not subject to
unemployment tax or self employment tax. I should say it's not.
It's not seven to self employment tax. And as a result,
you can actually by managing it properly, it's going to
be managed. This flexibility, the flexibility has to be managed,
(08:29):
and by managing it properly, you can reduce your tax
liability with that subjec SUBS corporation. Now you have to
remember that a subcurp anes coop you have to have
a reasonable salary. You have to make a reasonable salary
and be on the payroll. Otherwise you're abusing uh the
U S corporation's advantages.
Speaker 2 (08:50):
And that and that's where you that's where you appeerce
to corporate vail and you are personally liable if you
don't do that, that's.
Speaker 1 (08:57):
Right, because what happens is is you have to make
sure that when you're a corporation, whether it's an S
corporate or C corp, that you have to be fiduciarily
responsible in every way so that the courts can clearly
see that there's two entities, the corporation and the person.
If you don't separate that, if you commingle funds and
(09:19):
do all that nonsense, that a good lawyer is going
to break the corporate veil.
Speaker 2 (09:24):
Yeah, and you're going to get in no trouble totally.
Speaker 1 (09:27):
So you've got to be really diligent about the management
of a SUBS corporation or ESC corporation.
Speaker 2 (09:32):
By the way, and a perfect example of that is
which people wouldn't even think of. If you pay one
of your vendors with personal credit card, you have just
pierced the corporate veil.
Speaker 1 (09:43):
That's right. The an opposing attorney will have a field
day with that one. Yeah, yeah, because you're being the
same person. The key is to make the corporation separate
from the individual.
Speaker 2 (09:56):
Yes.
Speaker 1 (09:57):
And so then there's this thing called an LLC, which
is a limited liability company, which we've already touched upon.
You could be a single member LLC. You could be
a partnership and and have it and have and be
an LLC, but you're going to be taxed as a partnership.
See the LLC. You can be taxed in a variety
of ways. You could be an S corporation in an LLC,
(10:20):
which I don't recommend, and that way your tax is
an S corporation. You could be an LLC and a
sole proprietor and that is when that's protecting you from
the personal liability side. But you're being taxed on your
individual tax return, and then you'd be you could be
a partnership taxes. Uh, I'm sorry. An LLC tax is
(10:41):
a partnership. So an LLC gives you the flexibility of
being taxed in different ways. Yeah, all right, So that
that's the advantage of it of an LLC. My favorite,
my favorite structure is still an S corporation because it
gives you the most flexibility from a tax standpoint, and
I call it flexibility. It doesn't eliminate tax, but it
(11:02):
gives you flexibility because of the profit from the S
corporation is not subject to self employment tax. So give
it all these structures my favorite, and of course that's
what my company is, is an S corporation. But like
Dean said, you have to be very diligent when you're
(11:24):
a corporation. Otherwise, if you're commingling funds, you're using personal
credit cards, all of that nonsense that you're gonna look
like a you're gonna look like the corporation and the
individual is one of the same, and you're gonna lose
every lawsuit with with a reason with a reasonable competent
attorney on the other side.
Speaker 2 (11:44):
And a lot of people do, okay, because they don't
understand this. They set up an S corp and then
they pay all their personal bills through the S corps
so they can quote unquote, you know, bring down their income.
But again, your deductions are not your personal bills. That
(12:06):
improper taxation that is deemed income. So if you have
your personal home rent, let's say, without using home home deductions,
which I never recommend anyway, but uh, you know you
are going to you have just pierced to corporate veil,
(12:27):
and it looks like you're just trying to take advantage
using the S corp to avoid paying taxes by getting deductions.
You would never get yeah, okay, and so yeah, this
was sometow I was taught very early, like eighteen years old, like,
(12:48):
no matter what, do not commingle and what commingling means.
Some people think commingling just means commingling the money. That's
why I brought up the concept of the personal credit cards.
It's not just commingling the money. It's actually using the
corporation to fund your personal lifestyle.
Speaker 1 (13:07):
And big no, big no no, You're gonna get nailed
and and all the value that the corporation has to
protect you is gone. The other the other misnomer people
have is that when they sign a personal guarantee for
a loan, even if it's a sebass corporation, it's still
personally liable on that when you the corporation protects you
(13:30):
from personal liability from the outside. But if you're signing away,
you're right and and and becoming personally liable for a
bank loan or a lease or even a vendor. Uh
that makes you sign personal guarantees, which I'd be very
cautious about, by the way. Uh, that just you you
are personally liable regardless of what kind of structure you have.
(13:53):
When you sign a personal guarantee.
Speaker 2 (13:55):
I was taught that too a young age. Don't ever
sign a personal guarantee. What's the what's the point of
getting a business loan if you're going to sign personal guarantee.
Speaker 1 (14:08):
Theoretically, there's no point. The problem is is that banks
are just being real difficult these days and requiring it
on everything. And when business owners need a line of credit.
Speaker 2 (14:18):
You know that that's the unfortunate part because they are
requiring more now than ever because ever, yeah, it was
never a case back in and back in the day,
and now like it defeats the whole purpose of having
a corporation. It's personal guarantee.
Speaker 1 (14:35):
That it does. It does, but at least it limits
you know, the outside suit lawsuits.
Speaker 2 (14:40):
But that's true.
Speaker 1 (14:41):
But but you know, but but but on the other hand,
you're right, uh, you know, people sign away. I you
know that I have clients that have personal guarantees with
vendors that are thirty years old, and I'm telling them
to go back and get that personal guarantee and rip
it up because you know, if something happens, you know,
(15:02):
imagine being loyal to a vendor for thirty years and
then they go after you personally because they got this
personal guarantee and you're happen to hit a ruck patch.
I mean, it's just scary. So you know, you're never
signed personal guarantees really now applies with exclamation points to
suppliers try to get them when especially when you're just starting.
Speaker 2 (15:24):
Out, well, like you're talking about the banks and credit
and stuff. To me, you know, it's like, if you're
going to sign personal guarantee, you just might as well
get the credit personally. Because here's the problem people don't
think about. If you're getting a business loan based on
your done in Bradstreet score and you do a personal guarantee,
(15:48):
you have all the negatives and none of the positives.
But because you're not you're building your business cred but
you're not building your personal credit. But your personal credit
could get affected negatively. So if you're going to have
where you might get affected negatively on your personal credit,
you might as well get the positive part of it
and have it being a personal credit so you're getting
(16:12):
that on your credit report. That's my opinion at least,
Like you know, it's a yeah, you don't want to
personal credit for your business, But in the same token,
if you're personally guaranteeing. That means you pray, basically are
without any of the benefits. In my opinion, yeah, it's
very true.
Speaker 1 (16:32):
It's a dangerous it's a dangerous part of being a
business owner of these personal guarantees. That's for Don Shure. Yeah,
you know, you should make sure you have homesteads on
your house and and and all, you know, and maybe
put the put your house into trust. All those types
of things can protect and you should go to a
state attorney or or an attorney to you know, protect
(16:55):
yourself because because if you run into trouble and then
you start to acting yourself, it's it's these are fraudulent
conveyances that occur and you're just going to get into
more trouble. So be proactive and trying to protect your assets,
no doubt.
Speaker 2 (17:11):
So.
Speaker 1 (17:12):
One of the things I like to offer your audience, Dean,
is a workbook called Legal Structures, and it's an actual
implementation workbook to help help the business owner understand what
the best legal structure is and how to go about
it and why and so in order to get that,
you go to NeXTSTEP CFO dot net. You hit the
(17:32):
contact button, you fill out the contact form and in
the message box simply put legal structure workbook and I'll
send that to you free change.
Speaker 2 (17:41):
Nice. I love it, and yes, this is a very
important subject. I'm glad we covered it because I can't
tell you how many people I know go into business
and they have no idea about any of this stuff.
I don't even know what makes them think they should
go into business without doing some research and knowing your
legalities and your life abilities and all that. But they do.
(18:02):
But they do, and they they they think certain things,
you know, but that's not reality because they took It's
like everything nowadays. They talk to their their buddy, or
like when somebody posts something on social media and I
know it's not true. I'm like, it's that pure reviewed
And the answer I get is, oh, yeah, all my
(18:23):
friends agree with me. No, no, and all your friends
should agree with you and your business decisions either because
they're not going to pay the price. You will. But
thankfully because of people like you, Michael, people can seek
out your expertise, your assistance so that they don't have
(18:45):
to pay the price.
Speaker 1 (18:47):
And it's a sision is ultimately the decision is ultimately
as what's structured.
Speaker 2 (18:51):
It yeah, and how much how much they want to yeah,
and how many to take exactly. Well, again it's been
this is great information, especially heading into New Year, because
taxes are coming, okay, and you'd better be in the
(19:12):
right legal structure for that. And so reach out to Michael,
get the free workbook and you know, see what Michael
can do for you. And once again, Michael, thanks for
being on the Adventures of.
Speaker 1 (19:25):
Pipelin and I wish you happy to you.
Speaker 2 (19:28):
Yeah, it's a matter of fact. I was just gonna say,
and I'll.
Speaker 1 (19:33):
See you next year, all right, excellent, thank you, bye
bye bye.
Speaker 2 (19:39):
Thank you for listening to the Adventures of Pipelin.
Speaker 1 (19:43):
I'm w for CUI Radio.
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