#13 | Business Entities- LLCs

Practical Tax with Steve Moskowitz

In this episode of Practical Tax, tax attorneys Steve Moskowitz and Cliff Capdevielle discuss the benefits of choosing a Limited Liability Company (LLC) as your business entity. Listen to the full episode today! Episode Transcript Intro: You're listening to the Practical Tax podcast with tax attorney Steve Moskowitz. The Practical Tax podcast is brought to you by Moskowitz LLP, a tax law firm. Steve Moskowitz: Hello, and welcome to everyone to our podcast about practical tax. And today we're gonna be talking about LLCs and all the benefits they have for you, we're gonna be talking about asset protection, because unfortunately in our society, a lot of people that don't have what you have wanna take it away from you in a lawsuit. We don't want that to happen, and we're gonna explain how you protect against that. And also we're gonna ask you the tough question; if you have the legal choice to pay taxes on either 80% of your profit or 100%, which would you choose? And all kinds of other benefits. On that happy note, I wanna to turn it over to my friend and colleague, the head of our tax department, tax attorney and accountant, Cliff Capdevielle. Cliff, take it away. Cliff Capdevielle: Thanks Steve. One of the first questions we get from new clients and often from existing clients is, "What's the best entity structure for me?" And it seems like a simple question but there's a lot to it. So, should you be a partnership, an LLC an S-corp or a C-corp? Oftentimes clients come in and they're operating as a sole proprietorship. Sole proprietorship is simple and easy but it's fraught with a lot of problems. The sole proprietorship is essentially you doing business in your own name, or as a DBA. And while it's simple, it doesn't add much in terms of asset protection. So, if you have a claim by a creditor, a vendor, anyone, your personal assets are exposed and that's why we- Steve Moskowitz: I have a question about that. Suppose you have a woman and has a business and she's in sole proprietor and her husband is a house husband, does that mean if the plaintiff would actually win, they can take assets away from her husband. Cliff Capdevielle: That's right, they can take the assets that are unrelated to the business. And that can be assets that have been in the family for years, totally unrelated to the business at all. Steve Moskowitz: That is not gonna make a happy marriage. Cliff Capdevielle: Not at all. So, we almost always recommend that an operating business choose a pass-through entity structure of some kind, an S-corp or an LLC. We occasionally will recommend a C-corp structure if the client is intending to raise money from professional investors, because the C-corp has the advantage of allowing different types of shares preferred in common. Steve Moskowitz: Cliff, I have a question about that. Cliff Capdevielle: Yeah. Steve Moskowitz: Suppose somebody chooses a C-corp, 'cause you see, their plan is to work the business for a while and then sell it, will there be any advantages to selling the shares of a C-corp? Cliff Capdevielle: Sure, it depends on what type of entity is, but the tax code does provide substantial tax benefits for startups, we see this all the time, Section 1202. Stock allows startups to sell up to $10 million, in some cases tax free and that's a huge tax- Steve Moskowitz: Wait a minute, $10 million dollars tax free? I bet that got our list of attention. Folks, how would you like to sell $10 million tax rate? And that's one of the reasons I became a tax lawyer. Look at the Fortune 500. They make billions of dollars in taxes, excuse me, they make billions of dollars in profits, and some of 'em legally don't pay a penny in taxes. How is that possible? 'Cause they have an army of people like Cliff and Liz and our colleagues and me, saying, "Hey, do this and do that." And that could make such a difference in your life. Imagine that.