Name: S Corp Tax Savings for Private Practices: When, Why, and How?
Uploaded: 2026-07-15T19:30:47.898Z
Duration: 1 h 4 min 51 s
Description: S Corp Tax Savings for Private Practices: When, Why, and How?

Transcript for "S Corp Tax Savings for Private Practices: When, Why, and How?": Alright. Alright. Welcome, everybody. Thank you for joining on Wednesday at 11PM Pacific Standard Time or wherever you might be joining from in The US here today. There's so many different folks. Grateful to have you here. Excited that you are excited or maybe not excited, just curious to come and learn about how to save money on becoming an s corp. What is an s corp? Is it right for you? Is it something that I should do? As Forrest, my partner in crime, always like to say this is one of the sexiest topics in accounting, so we're really excited to talk about it here today. Our team. I am one of the cofounders of Heard. Forrest here is my first hire that I ever made at Heard some odd years ago. And my partner in crime at this point, we've probably done 500 webinars together. That's a gross exaggeration, but definitely a lot of webinars together. Not gonna introduce everybody else, but really grateful to everybody behind the scenes, including Janelle and Isabelle, all their support always in setting up these webinars and making them run so smoothly. And so big shout out to the Heard team, our accounting and tax specialist behind the t behind the scenes here to help you answer any questions that might be coming up throughout the presentations and make sure that we're staying on topic. Cool. So what is heard? If you haven't heard of heard, the worst everybody likes to come up with these puns. They're like, Andrew, like, have you heard of heard? It's like, yes. That we've been doing this for seven years. I get the pun. Heard is the only financial platform built for private practice therapists. Heard's designed how you designed around how practice owners earn, spend, and file. And so we provide bookkeeping services, payroll services, tax services. We recently launched simple bank accounts. And so for a lot of folks that are newer and moving into private practice, that intersection of banking and accounting really simplifies a lot of those early steps for you. And so, what we're here to talk about today, though, is s corps, and so we'll probably be talking a little bit about taxes and tax savings and then also payroll. But we are here to support in a number of different ways. Forrest, anything to add here? No. I'm excited to get to the educational content. Let's dive in and do it. Forrest, go ahead and kick us off. Yes. So we're doing something new today. I think this is our fourth live cast, which we're really excited for. But I know a lot of the materials we present is very dense, meaning there is so much to get through on a newer topic, often complex. And like Andrew mentioned earlier, the goal of this, by no means, our session is become an expert, but start laying that foundation. Right? So within the resources and in the chat, you'll see an outline that we put together. And so that's great to follow along with throughout the today and gives you maybe some fun homework, to do after this about some key takeaways. Right? The goal again of today is for those who are not yet s corporations and who are curious, maybe whether it's now, six months, or a year out, two years out, if an s corp may be a good fit. But before we hone anything around s corps, it's really important to explain the process that needs to happen before, which is incorporation. Now incorporation is a whole another topic that folks often have questions about. So for the first ten or so minutes, we're gonna be focused on business entities or incorporation types versus tax designations. After that, we'll go in more about how to determine if an s corp is right now or when it may be in the future. Shockingly, it's easier to become an s corp than a lot of folks think. So we'll walk through the steps of once you're ready to become an s corp, what that looks like, and then all the changes that occur within the accounting tax compliance world once you become an s corp, rounded out, with some pros and cons. We do have a lot of slides, as I mentioned today. So we're gonna do our best to, as Andrew mentioned, to answer questions live. We have our wonderful team here to answer as many as we can in the background. But what we're also really excited for is on August 19, we're gonna have an ask me anything AMA style follow-up live cast where we're gonna take all the questions that come out of today, put together some seed themes, and essentially ask as many questions as you can. So for those who are unable to get those questions answered or maybe have more questions after today, there's gonna be a lot of great opportunities, after this to get those answered. Alright. Oops. Sorry. I always forget this is a little bit delayed. So we're gonna start with a quick poll, get everyone engaged. How are you all incorporated? Right? Incorporation, this is how your business is formed. By default, you are a sole proprietorship. So if none of these answers look familiar, you're likely a sole proprietorship. And you don't see s corp here, by the way, because an s corp is not a legal structure or or entity type. Alright. So we have 26% of sole props, exactly what I would expect, sole prop, sole proprietorship, in case you hear us call that out throughout, LLC or PLLC. Why you see these on the same is they essentially are the same except it's dependent on your state if there's a p in front of that LLC, corporation, or professional corporation. Imagine the majority of those folks are professional corporations, because the lovely state of California we'll talk about the uniqueness there later. And then some folks were super honest and said unsure. Thank you for that. And if you are unsure, a few tips on determining what your incorporation or entity type is. One is if you filed taxes last year as a self employed professional. If you look at your business side of taxes on that schedule c, should help identify there. If you're brand new this year, if you don't recall working with a lawyer or setting anything up with the secretary of state, you are very likely then gonna be a sole proprietor. Okay. So we can move on from the poll here. Awesome. Thank you. We'll go to the next slide. Okay. So as I mentioned earlier, business entities versus tax designations. Two separate things, but highly correlated. Your business entity is governed by your secretary of state. So we're gonna go through some of those state by state examples here shortly, but there is a registration process. And once you incorporate or register this business entity, you get what's called an articles of incorporation. Now your business entity drives your tax designation type, but they're, again, two separate things. Business entity governed by secretary of state, tax designation governed by the IRS, and that determines how your practice is going to be taxed. Now when you're thinking about what type of business entity or incorporation type to create, we have this very fun decision tree. Now the big pieces in this decision tree is, one, do you have more than one owner? Right? Are you a partnership? Maybe you're working with a fellow clinician together or your spouse sometimes. I've seen this. Most folks are not partnerships, but that would affect, right, how you're gonna go down this business entity decision tree because then you would be organized and then taxed as a partnership. So here at Heard, we're not experts in partnerships. We're not gonna spend too much time today on that partnership route. And, again, most providers that we see are not partnerships. So assuming you're not a partnership or working with someone else, again, as a part owner, if you're a group practice, that does not necessarily mean you're a a partnership or multi owned practice, is what state you're in. Right? You'll see this PLLC versus LLC, professional limited liability corporation versus limited liability corporation. Essentially, exact same thing at the end of the day except certain states, if you have a professional licensure, like myself as a former CPA or a licensed clinical psychologist, certain states require you to form that PLLC person LLC. Very similar application process. It's, again, a p in front of that l. Most states have LLCs, but New York, for example, Washington state require those PLLCs. So check with your secretary of state. We have a lot of great resources online if your state has, that rule. Now the other exception here is California. California, you see it don't see an option for LLC or PLLC. For licensed professionals in California, if you want to incorporate, your really only option is a professional corporation. So you might have heard of corporations, a professional corporation, corporation, same ideas, LLC versus PLLC. I'm sure a lot of you today are in California. I know it's Heard's number one state of of members, and there's a really important uniqueness that comes out of this regarding taxation type. And so if you become a professional corporation, it it almost always makes sense to then be taxed as an s corporation. Now you might have had some new learnings today of maybe you were like, oh, shoot. I'm in a PLLC state, and I needed or sorry. I'm in an LLC state, and I needed to form a PLLC. I worry you're not gonna go to jail or anything, but it's something you wanna rectify from a documentation side to ensure you're in good standing. It's not this endless process either. So always good to double check. And then when you're ready to incorporate, go back to this decision tree. Okay. So we're gonna just gonna continue building off these themes here. Right? And as I mentioned earlier, entity type, incorporation type, or business structure drives your tax designation. So your default entity or incorporation status, as I mentioned earlier, is a sole proprietor. So if I start a therapy practice tomorrow, I'm a sole proprietor. I wouldn't have to do anything with the state registering, wouldn't have to do anything necessarily with the IRS. I'm just a sole proprietor by default. Now the interesting thing is if I then perform an LLC, I'm still taxed the same way. A lot of people think if, oh, once I'm in LLC, my taxes change. Not the case. You would still be taxed as a sole proprietor. So, again, if I'm incorporated by default as a sole proprietor or I then form or incorporate an LLC or a PLLC, I'm still taxed as a sole proprietor. You'll see that pass through box, which I'll hit on on the next slide. Now s corp is a new tax designation. Right? We're gonna talk more about this later. But before you can become an s corp, you need to be incorporated. So this will be dependent on your state, whether it's an LLC, a PLLC, or if you're in California, a a professional corporation. S corp, again, is a tax designation, not a legal entity. S corps are also pass through tax designation types, which we'll talk about in a second. And then you see corporations, which I think is the Empire State Building there, as the third bucket. Rarely do we see, solo practices or small to midsize group practices be incorporated and then therefore taxed as a c corporation. There's double taxation, a lot more compliance and requirements around, similar partnerships. Heard this time doesn't work with corporations. You won't see us go into as much detail here, but it is another taxation type. If you form a professional corporation in California, your default tax status is a corporation, which is why I said earlier, most folks in California who become a professional corporation, well, they're or usually immediately transition to be taxed as an s corporation. Okay. Pass through. What does this mean? Now if you're at it or preparing for annual tax season or, tax season survival kit live cast, you might refer back to this topic, which is the idea that the profit from your practice, profit is your income minus your expenses, passes through to your personal tax return. And so a lot of times when folks open their practices, they think about, what about my business taxes? Well, if you're a sole taxed as a sole proprietor, which again is default, or if you're an LLC or a PLLC, it's going to pass through to your personal return, so it's personal taxes. Same thing with an s corporation. An s corp is a pass through tax designation. Right? That's when you pay quarterly tax estimates and you pay them on the IRS's website. You see a designation for personal tax estimates. It's a really bizarre concept. Right? Because it's like your business is driving these taxes are driving this topic, but it's passing through to your personal tax return. Okay. This summarizes a lot of stuff I've been voicing over. Right? So the left, we have the different entity types or incorporation types, and then on the right, how it is likely taxed or that default tax designation. The IRS calls sole proprietors or LLCs or PLLCs disregarded entities. Why they use that word? I don't know. But it's not they're disregarding your business by any means, but a good term to know because you might be reading online, oh, disregarded entities don't need to apply. Right? LLCs and PLLCs, you see the most different options here. Right? That's because by default, you're disregarded, as I mentioned. You could be a multi member partnership, so a multi member LLC or PLLC. Your LLC or PLLC can elect to be taxed as an s corp. Again, that incorporation is a big requirement of becoming an s corp or the rare instance of a c corporations. If you're incorporated solely as a partnership, that's a direct correlation to taxed as a partnership. And then the last box really there for our friends in California. Right? If you your only option of incorporating as a professional corporation, then you have that route default. You're a You're a c corp, but you have the option to elect as a s corporation. Andrew Riesen, anything to add on this business entity section or maybe any questions that you're seeing out there that you want answered? I don't think so. I think we have a bit more material on the business entities, so we should be able to cover a little bit more, and we can pause after that next section. Sweet. We can hop ahead to the next slide. Before we jump into kind of the nuts and bolts of how to actually do this and when it makes sense, How are you guys feeling about the material so far? I know the business entity stuff can be, like, pretty eye glazing for everyone, but it's very foundational to everything we're doing. So feel free to drop in the chat how you're feeling, if it feels good. And thank you to Forrest and Joanna and Missy and Delilah and Andrew and all of the questions that have been coming through. It's really awesome to see all those questions. Lots of other folks are gonna be helped because you're asking those questions. Cool. Let's go ahead and jump into the next slide. So high level, we have all this material here. We'll share it back to you after the fact. But, just really quickly, your entity type is gonna determine whether or not you have liability protection. And so if you're a sole proprietor that has not structured an LLC or a PLLC, you're not going to have that liability protection. But one thing to note is for licensed professionals like clinical psychologists or therapists or whatever licensure type that you might have, you're still gonna need malpractice insurance and liability insurance because it's not going to provide that totality of coverage that a standard LLC might provide for a non licensed professional. The entity type is also gonna determine the ownership structure. So I saw someone in there talking about, their husband and, wife working together under a single ownership structure. And so, there's different types of entities allow that. Right? Whether that's a partnership or whether that's an s corp or whether that's multiple owners in a c corp. It's going to influence how decisions are made. It's going to, you know, have an implication on what your basic legal obligations are. Right? Are there specific forms that you need to file with the secretary of state? Are there additional franchise taxes associated with this entity or, tax designation that you have set up? And it also has an influence over how businesses can raise money and what they can do with their money. At the highest level, we're not lawyers. So, again, have a consultation with a legal professional. But before you do that at any point in time, my recommendation is always talk to your peers, dig into the Facebook groups, the listservs, but also talk to your licensure board. A lot of the licensure boards have really fantastic materials based on the state that you're in and oftentimes have a lawyer that you can spend time with to understand what type of business entity might be right for you and your practice. And it may be more complicated than just, clinical work that you're doing. Right? You might be doing coaching work or you might be doing other types of work. And in those circumstances, that might actually require you to have two different types of business entities or might influence how you actually structure your business. So always have a conversation, but talk to your licensure board, talk to your peers, talk to the secretary of state first. That's going to be the cheapest path forward. Lawyers charge on an hourly basis. It's going to cost money if you go ahead and do that. But once you figure that out, there are online services that do make it a little bit cheaper. And so once you get that understanding of how you might think about structuring that, you can take that path forward. Of course, your tax designation is going to determine and influence whether the business pays taxes separately from its owners. Right? So a c corp, we talked about the benefits of c corps versus a pass through entity. I saw a couple questions there. For most clinical practices, it's not gonna make sense for you to be taxed at the business level and the personal level. Typically, that's something that you'd start exploring at, let's say, 2,000,000 or 2 and a half million in revenue where you wanna start keeping profits in the business and not getting taxed on all of those profits or passing those profits through back to the owners on an year over year basis. And so, probably not applicable to most of you on this call. The pass through structure is the most simple and there's no right answer for you. We're here to just help you understand what might be able to to help you most. Go ahead and go to the next slide here. Again covered a lot of this. Most providers work with a lawyer or online But, again, please start with your licensure board or the secretary of state. It's a very cheap way to understand and not have to pay, expensive dollars to do something that you might not understand. And my broad recommendation here is don't be afraid when you go to those conversations to ask what feel like the silly or the stupid questions, or why don't I understand these things. That discovery process is extremely helpful for you figuring out what's right for you. Of course, we have awesome guides and free resources on our websites. But, again, have those conversations and figure out what is right for you based on your individual structure, the types of services that you're providing, and how you plan to build your business for the future. I won't walk through each of these individual items but just at a high level it's, you know, getting that entity set up, it's filing the articles of incorporation and then there's a number of legal steps that take process after that. Go ahead and jump. Okay. Awesome. A lot of folks on here probably when they're hearing information like this, they're like, oh my god. I'm a sole proprietor. I haven't set anything up yet. Like, if I am I doing something wrong? Did I, you know, not follow a step that I was supposed to in the process? In our financial state of private practice port that we put out every year, this year, the data showed that 43.6 of practices or about 44% of practices were registered as LLCs or PLLCs. And my thought process is that a subset of those are probably filing as s corp. So the number of folks that have a business entity is probably less than you think. And so, again, my broad recommendation is always going to be it's helpful for the liability protection, but you also just need to do your own discovery and figure out what's right for you. But in general, if you do decide to elect as a or file, PLLC or an LLC or for our friends in California, a professional corp and getting elected as an s corp, you do need to maintain a separate business bank account to reap the benefits of that, liability protection. It is going to require an additional layer of, I would say, accuracy and quality and, overhead mentally when it comes to maintaining an accurate set of books or just tracking income and expenses throughout the year. There's annual reports, biannual reports, depending on the state that you're in, and people will work with a registered agent for that or they'll file that themselves. There's different ways that you can approach doing that. Again, some states have an annual franchise tax. So states like New York, states like California have additional taxes levied against business entities or tax different types of tax designations. And so always do your research and understand there and of course there's gonna be state and local taxes and license fees that you're gonna have to consider if you think about setting up one of these business entities. Forrest any questions that are coming up through here? I'm breezing through this a little bit because you've covered a lot of it. Yeah. No. No. I think I think it's great. We're doing really good on time. Registered agents. There's been a lot of questions on that. You just mentioned it. What would you be your opinion on? Do you need a registered agent? And more importantly, what is a registered agent? So a registered agent is somebody that is going to, basically manage the service of process for your business entity in the given state that you're in, which means that you have an annual report that you're required for, filing with the secretary of state on an annual basis. Some states have different considerations to think about. But this is somebody that will just take care of that for you and make sure that you're in good standing with the state and you don't miss filing the report and then have issues that come up with the business entity. And so, again, it's probably, like, a 100 to $200 that different online services or lawyers charge different prices. And so if you're one of those people that just, like, wants to pay somebody to hand that off and take care of it, that could be a great option for you. It's not super expensive, but it's also a pretty easy thing to do to file that statement of information or whatever that individual state might call it, with the individual secretary of state. So totally up to you, but if you're looking to save a few pennies, I think doing it yourself is a pretty straightforward path. Very well said. And I think the other benefit I'll sometimes see folks doing that is from a privacy standpoint is your LLC business address will be public, and you can use the registered agent's address. As Andrew mentioned, there are some of those compliance activities. It sounds like a lot, but it's really, like, point in time quick exercises, paying the state a little bit of money for the renewal. So each year, just put those dates in your calendar. It's usually only one or two dates. That way you can get well ahead of them because you wanna keep that LLC or PLLC in good standing. Going back to some of the other top questions I'll just hit on really quick is so for those in California, right, where there are folks who are like, well, my only options are really sole prop or s corp, it sounds like, from a tax type. And and that's the case. And we're gonna go over shortly when an s corp makes sense. But I wanna reassure folks there's plenty of providers that we work with that Heard of been in practice for thirty years and are still a sole proprietorship. Sole proprietorship is not looked upon poorly. It doesn't mean negatively. I think over a third of providers, that use her are sole proprietors and normally stay as sole proprietors until they're ready to become an s corporation. Talk a little about oh, in keeping that articles of incorporation. So once you file with your secretary of state, each state's a little different. Normally, some California is sometimes a few days. I've seen New York be a few months. So keep in time. It's not usually an immediate approval, but be sure to keep that documentation. We'll have a, seal on the top right from your secretary of state and important to keep those files because if you work with a new CPA or maybe need to open up a business bank account, they're likely gonna request that document, which is called the articles of incorporation. Alright, Andrew. You wanna do the fun slide? You're more fun than me. Let's I don't think that's true. I think we're both fun together, Forrest. Also, you're the one that's in Central America, and I'm sitting in the garage. So I think we can, displace fun in different ways here. So one thing that we wanted to do before we started digging into the really fun s corp material, now that we've gotten the really sleepy, boring stuff out of the way, is just get an understanding of what's your relationship status with the IRS. How do you feel about the IRS? Drop it into the chat. It's complicated. We only have those conversations in April. I'm on a break. I'm just waiting until September, October. I'm fully committed, or I'm just ghosting the IRS. This is a safe space to air it all out, so drop it into the chat here. And I know, Andrew, I've heard a lot of great stories about folks' interactions with IRS. I think the IRS likes to ghost most individuals as they're so hard to get a hold of. So if you ever need to call them, be ready to call at different times of the day throughout the week. And if you have questions about like, say, you need to find your, s corp verification letter or EIN letter down the road, do your absolute best not to do that between December and April because it sometimes can take days to get ahold of them. So, yeah, we wanna do something a little different and not just talk text and account the whole time. So, hopefully, this was a nice break. I saw a few, laughing, crying emojis, which is always a good sign. There are some some scared and emotionally abused in there, which feels right. One thing to note is that there was, like, sizable layoffs over the past couple years at the IRS, and there's a backlog there. And to Forrest Point, it takes a really long freaking time to get ahold of them. And there are specific times that, work better than others if you need to follow-up. And so we're gonna talk about things like filing the form two five five three and all of these other, tax forms. And the reality is you may not be hearing back from them on certain things. So we'll help you think through how to approach that. Alright. We're gonna keep everyone engaged here really quick. Another poll. So, again, we've moved on from entities moved in the s corps. How familiar are you all with s corps? First time you're hearing about it, so not familiar, maybe you've read a little bit about it, somewhat familiar, or very familiar. Alright. So let's look pretty much in. So 31%, not familiar. So you're in the right place. Somewhat familiar, 63% also in the right place. And then I would say the very familiar folks is our our challenge audience. So keep us accountable. Ask us some fun questions for the 6%, out of there that are very familiar. Alright. We can move forward. Awesome. Okay. So one of the key takeaways today, right, is you need to be incorporated to become an s corp. I would say the second biggest takeaway is s corporations do not make sense for everyone because not everyone saves on taxes. I know one of the hardest parts by jobs is if I'm gonna be in consultations and you meet with a newer provider who mentions they, oh, I read online I need to become an s corp. My friend told me I should become an s corp right off the bat. And then you understand a little bit more about their business, and you're like, oh, shoot. You're paying more in taxes as an s corporation. So, yes, it can save you money. It can be a great tool, but there's a time and place for when to make that transition, which is what we're gonna go over in these next few slides. So, again, an s corporation is a tax status, not a legal entity. The main reason people will transition their tax from that disregarded any sole proprietorship is tax savings. Right? We have a few slides that will voice over in a little bit about, like, what makes up the tax savings. However, I would recommend not worrying about the minute details about why and so you are savings today. It's more of, am I potentially a good fit for an s corporation, which the primary driver is gonna be about profit, which we'll talk about shortly. As I mentioned, though, in that learning objective slide, there are compliance changes to your bookkeeping. Like Andrew mentioned with incorporation, there's also filing new requirements for an s corp. So it's really important not to also just look at the savings of the s corp, but also what is the cost of forming your transition to that s corp, and then the upkeep and compliance costs plus the new headspace. Think about when you're becoming an s corp. I would say it's usually the big inflection point of when you're moving from like, since you started your practice, there's a lot to learn. Then you become but there's a lot of new stuff to learn, and then it gets to rinse and repeat. Right? But once you become an s corp, you wanna take strong consideration into those new requirements so you're staying in compliance. And then when you're analyzing or assessing if the transition is right, take it into consideration of those costs. Every year, hundreds of thousands of beta therapists do savings assessments. I know 25% of the providers in our trend report said they were thinking or planning on doing s corp. If I had to guess, maybe 10 to 15% actually transitioned into an s corp because, again, it doesn't make sense for everyone. So you heard me kind of alluded to this earlier, but profit, again, is your income minus expenses will be a key indicator of if an s corp is the right move from your practice. Business profit, right, or self employed profit. Important thing when when calculating this is, say, you, work at a hospital as a contractor, and then you also do a private practice at night. It includes all self employed income for this profit calculation. Now if you're a w two employee working nine to five at a hospital, and then in the evenings, you work in private practice, then you would not include your w two. Again, you're only including self employed earnings in this business profit calculation, but all self employee earnings. Now that word profit, again, I already defined it, but you're probably like, hey. We're a little over six months through the year, so halfway through the year. How would I know what my profit is or project it out to see if I'm maybe near this a 100,000 threshold that's recommended. There's what's called a profit and loss statement. So if you're using QuickBooks, it's a downloadable report. You know, Heard it's one of our reports. If you're using a spreadsheet to track your bookkeeping and finances, Again, be taking all of that selfening, employed income, subtracting it by the business expenses, giving you that profit number. Right? Now that 100,000 profit is gonna vary CPA to CPA, situation to situation. We like to be a little bit more conservative when just in these webinars, right, of saying, hey. This is a good number to start thinking about it. But it doesn't mean if you're at, say, 90,000 in profit, that doesn't mean you're definitely not gonna see savings, and it also definitely doesn't mean you per doesn't also mean you're definitely gonna see savings over a 100. So think about it as a barometer. Right? So going back to that p and l example of profit and loss I was talking about earlier. Six months through the year. If my profit right now is $40,000, great. I know there's another six months. That means I'm gonna be about a 80,000 in profit at the end of the year. What about though if I took into consideration, oh, I was out for a month of vacation in March. So maybe that 80 actually might be closer to 85 or 90. Or, oh, I'm launching this really cool course online. I'm gonna start getting some passive income in addition to seeing my one on one sessions. So maybe I'll be closer to 95. So this time of the year is always a great time to do an s corp savings assessment because you got that first six months, but it's not just purely a calculation. Right? As the business owner, you gotta put a little bit of that analytical hat on and say, is this an accurate depiction of what the next six months look like? Is there any new changes in my practice the next six months? Maybe I'm gonna hire some folks, etcetera. Right? Now, again, profit number variable, but why there is a profit number or why we think it's the best indicator is because there are savings or sorry, costs that are gonna be involved when you transition this s corp. So you need a certain amount of leftover money to pay for that. And then there's this offsetting calculation, which is really the nuts and bolts technicality behind the s corp savings. And then we already talked about, I know the heads up at the bottom, about those increased compliance requirements, which we'll talk about, a little bit later. So, Forrest. how Perry we go Forrest, really quickly before we go over there, if we jump back to the last slide, a lot of what we'll be talking about here is financially, but, like, I keep thinking about one of these clients that we've worked with in the past, where a 100%. made sense for her to become an s corp. She transitioned, became an s corp, and the change in how she had to operate on a regular basis of going through the process of forming a new business entity, managing those annual reports, having to set up payroll, look at the reasonable salary on a regular basis, having to manage accounting in a new way, having additional tax returns. All of it was just a little bit overwhelming for her, very frankly, and she decided that the actual benefit of operating as an s corp didn't make sense. And so there's gonna be certain circumstances where it makes sense financially, but also on a day to day basis. It might not feel right for you because you're in the first year of practice or second year of practice, and you're getting your clinical feet beneath you and trying to figure that out. And so this isn't us coming here to be like, you have to become an s corp. And I I've seen in the chat, like, my accountant said this amount. My accountant said this amount. This is like there's so many quantitative and qualitative factors, and every accountant is gonna give you a different number. Our goal is to just generally be pretty conservative in what our recommendation is here, but also get a real understanding. We'll talk about some of those things of what it looks like on a day to day basis for you to actually do that and be an s corp because it is a little bit different. The requirements are different and it's a bit more complex. So just wanted to cut you off before we jumped into the next part. Yeah. I think it was a a definitely warranted cutoff. It's a good, hat to put on because if you're saving $2,000, you divide that by three hundred and sixty five days throughout the year. For some, that's a really meaningful amount. In others, it's like, I don't want this extra stress and pressure. And I will warn folks. I've seen predatory ads online that say, like, making more than $60,000 become an s corp. Right? And so folks will charge s corp as a service and use that as a, you know, quick business lever. So, there's just a fun little gift here, but I don't know if it will will show up. Anyways, we'll talk a little bit kinda how Heard does escort assessments. They're free for our members, but all this information is available through our resources as well online. And something to think through is if you are meeting with, a CPA is going through these questions and asking them, the tough questions upon just beyond what am I gonna save, and it's more of like, how did you get to that number of what I'm going to save. And so as I mentioned earlier, to find out what that profit number is, right, Business expense business income minus business expenses. There's a concept of paying yourself payroll as an s corporation. This is probably the biggest transition I see folks have to make. Forrest s corp is now paying Forrest a w two salary. We'll talk about how to set that up in a little bit, but a big change in something you need to account for. It's one of those costs. Right? This is what Andrew just mentioned, that estimated tax set, savings. Like, right, you're trading off this tax savings potentially for more compliance and more effort work. We talked all about this entity formation EIN number. Right? If if you are transitioning, from a sole proprietor to a s corp within that LLC, PLC, you are gonna get an EIN for the first time. And if not, it should carry over automatically, and then timing, which we'll talk about as well. But at this point of the year in July, less and less folks are forming escorts. The most common time people elect escorts is Jan. One, your pricing that why are you having this presentation now is because a lot of the planning goes into effect in quarter four. Right? So you're doing these savings assessments, getting your mindset ready. Is this something I'm ready to change into? And then taking those entity and then filing steps. And so the real quick, because I know we're kind of wrapping up on time here in the bottom half is, has anyone performed an s corp savings assessment before? Alright. So eleven or that's weird. Oh, it says a 100%. 11 notes. I'm glad someone else I saw Andrew's reaction to. So 8% have performed a savings assessment. Way to go and love that you're here too learning more about s corps. 91% have not. Again, first piece of advice before you make that move to an s corp or you think about incorporating this s corp savings assessment is a great thing to do. Alright, Andrew. I'll hand it back over to you. Alright. Okay. We're gonna use this slide, and then we're doing a little math check on the next two slides, and we may have fat thumbed or not. So we'll skip over those slides and jump to that section here. But just to call out, the average cost of becoming an s corp in the first year. And before I do that, because it's in my head, Forrest was talking about, like, hey. It's in July. We're talking about s corps. Like, March 15 is the actual deadline. Why it makes sense to think about it early is it's really freaking annoying both to the accountant, but also for yourself to manage midyear transitions. And so preparing for the timeline of transition and ideally setting that up at the beginning of a calendar year, so January 1, is gonna make the actual accounting a lot more simple for you because the alternative is going to be really ruthlessly. Let's say you file in, like, you know, July 15, what is the day, and, you get accepted as an s corp on July 15. You have to start treating your account or your accounting differently for the s corporation July 15 forward to the end of the year. You have to operate as a sole proprietor for January 1, the the middle part of the year, and have a schedule c, separate business tax return. And so try to set it up if you do want to become that on January 1 or the beginning of the calendar year. And the reason that starting early matters as well is because, like, each of these individual steps, like filing incorporation docs, getting the EIN if you don't have one, filing the actual s corp election form, getting hearing back from the IRS, which may or may not happen. It just takes time. And so I just wanted to call that out. Average cost of first year s corp is about 4,300. Obviously, this is going to vary a lot depending on who you work with, the types of services that you use, whether it's, like, DIY software that you're using, whether you're working with a tax professional plus an accountant. And so what you can typically, estimate is that the entity formation is probably gonna be anywhere from, you know, it could be as low as 250, anywhere up to 1,500 if you work with a lawyer. Hopefully, not anything more than that. You should be able to get it around that $500 mark. So if you're paying that much more, you should probably ask why and what it includes. Accounting fees, so that's gonna be savings analysis, election, all of the compliance associated with that. And those are the upfront costs associated with that. And then for the recurring expenses, you're gonna have that additional tax return on top of your personal tax return, so what we call the eleven twenty s. You may or may not have state franchise tax. There may be city taxes for folks that are in New York. There are different implications from a tax taxation standpoint if you're in, the Big Apple. And then, of course, there's payroll processing as well, and you'll want to work with a a software provider for that payroll processing. And so lots of different things. Again, you'll have these materials after the fact, but I just wanna call out that there's a lot of costs associated with making this transition on top of just the qualitative work that you're going to have to take on and learn about through this transition as well. Isabelle, go ahead and just jump over the next two slides. Just looking at time. School practice. Pulse check. Awesome. While we're here, before we jump into the pulse check and I hand this back over to Forrest, again, we've talked about in both in the chat and then briefly here, what is the actual dollar threshold that savings makes sense? Every accountant, I just want to state this plainly, is going to give you probably different numbers on what is the gross profit number, what is the net profit number, what is your reasonable salary income. And so if you're looking for one definitive answer, there is not a definitive answer as to when it makes sense for you to become an s corp. Getting an assessment done by someone like Heard or another accountant, is a great way to go about understanding, is this right for me in providing you that foundational information and education to set you up for success with a a good decision. But whether it's a 100 k, whether it's 300 k, which I saw in the chat, it's going to be different on an individual basis for both dollar purposes and qualitative purposes. And so I just want to be very, very clear about that. There's not a perfect answer here. Forrest, hand it over to you here. Well, Isabel, remind me, for this pulse check slide, is there a quick survey you wanna push out? No? Okay. We are in this live, but we're gonna keep it moving. So I know we've hinted at some of these next steps of once you become an s corp as well as the timing. So we're gonna go through this probably for the next five or so minutes. We'll share a slide or two on Heard, and then Andrew and I are gonna stick around for another ten or fifteen minutes after questions. I think we've answered already 60 or 75 in the q and a, which has been fantastic. And our team, more or Forrest specifically has been helping pass Andrew and I theme. So I know we haven't done as good of a job as we usually like to do of calling out individuals' names who ask those questions. Just know those are getting funneled through us, and that's when we're trying to to jump in. I think this has been pretty loud and clear is that, you know, most folks will work with a CPA or accountant to go through this process. One, because of the savings assessment. And then two, once you are incorporated, have enough savings, right, the big step is gonna be filing your form two five five three. Consider that your application to become an s corp. If you type in form two five five three on Google, you'll see a PDF on the IRS's website. And it actually is, like I said, fairly straightforward document. However, it's one of those legalese tax documents where you check wrong one wrong box, and it could lead to no fun. Right? And so maybe you fill it out yourself and have even a friend, that's a CPA or accountant or business savvy give it a review. Really, really important, though, that's not where it ends. You need to make sure the s corp approves your form two five five three because on that document or application become an s corp, there's an election date, right, of when you wanna become an s corp. Most folks will do January 1 because that's like Andrew Riesen said. You're gonna make your taxes and bookkeeping a lot easier. Now it could take anywhere from thirty to sixty days, sometimes three months, to get this what's called CP two six one, which is the IRS's letter saying, hey, Andrew Riesen. You're an s corp as of x x date. Right? That date is also really important. You wanna make sure that date lines up to when you wanted to elect or request it. Similar to your articles of incorporation, this is another key business doc to keep because if you move CPAs or when you go work with the CPA, they're gonna ask for this document. Deadlines. So I know we hit it on pretty rare to form at this time of the year unless you're seeing Buku savings, and maybe there is enough to warrant it. But normal time frame is between January 1 to March 15. The thing though is before 01/01/2027 is you would need to be incorporated. You cannot elect an s corp status before your incorporation date. Right? And so let's say you forgot you're on vacation over, the holidays in December, and you come back and you file your LLC as of January 15. The first day you could be an s corp next year is January 15, and then you would have two months and fifteen days after January 15 to be taxed as an s corp. So what's unique is almost everyone has a different deadline when it comes to filing their s corp because it's dependent, on that time of when you incorporate it. Now you might read online or hear folks that, well, I was able to backdate my election. So I filed my form two five five three today with an election date as of January 1. Rarely do we see that work. There are certain circumstances, especially during COVID. They were IRS was accepting them left and right. Just don't do that blindly. Make sure you work with an accountant or CPA and and ensure that you meet the IRS's late election criteria because it's not an auto accept. Cool. I really think we've hit on most of these deadlines here. I'm just revisiting once more. And, Andrew, feel free to actually give me the thumbs up. Mhmm. Yeah. We talked about the savings analysis as well. Again, if you do a full year savings analysis and you become an s corp today, you're getting half of those savings because there's only half the year as an s corp. Okay. I do wanna spend a minute or two here because I think this is really important. Right? So we've talked through how to become an s corp, when to become an s corp, but what about once you're an s corp? You heard me talk about that inflection point, right, of a lot of business changes. And this is a time where I often see folks either change their CPA from, oh, my friend does taxes to now I'm moving to someone who does s corporations or maybe I was doing it myself. And then also maybe now moving to a CPA because of these new requirements and transitions that occur. Now if you're someone who is savvy and managing yourself, there are plenty of folks out there who also DIY their taxes and accounting as an s corp. It just brings on more responsibility. One of the biggest changes is you're filing a new annual tax return, and it is due a month earlier than your personal taxes. So, normally, it's due on March 15, and it's called your 11/20 s. For those familiar with your schedule c, which you file your income and expenses from your practice annually, very similar looking. Right? You take your bookkeeping records. You input them that on this eleven twenty s. After you file the eleven twenty s, you get what's called a k one. That k one, because escorts are passed through, passes through to your personal tax return. The concept of bookkeeping is still really important with escorts. There's just some slight changes. Now that you are an employee of your business, some of the deductions work slightly different, and benefits will work now slightly different because, again, you are an employee of your business. One of the hardest things folks understand or that transition is, again, you are an employee. Any owners of an s corp have to be an employee of the business and pay, on the right, you'll see the section on payroll, or reasonable salary. But before I hit the payroll, also wanna call out some states have requirements. These are different than the entity requirements we're talking about earlier. Right? So don't get them confused, but very similar. Right? Some have specific reports or renewals or, like, I think it's New Jersey. You have to let the state know you're also being taxed as an s corp. So keep in mind, right, there are some of those state specific requirements as well. Payroll, you could do a whole webinar on or live cast for an hour. Right? The hardest thing, again, to understand, as an owner of an s corp, you are required required required from the IRS, say, three times because a lot of people think they're not required to pay a reasonable salary via w two income. Only exclusion here is if you are not profitable. The IRS does not make you pay a reasonable salary. Reasonable salaries, very similar to the profit threshold we were talking earlier for s corps. You're gonna hear all sorts of answers. My recommendation is normally never go below minimum wage. Right? Because how could you call paying yourself below minimum wage a reasonable salary? And it is not normally necessary to give all of your profit away as a reasonable salary. Reasonable salary does not mean Andrew can only live off this or this is all Andrew can pay himself. It's a compliance mechanism of an escort to make sure folks don't take advantage of this tax savings mechanism, and so it's finding somewhere in the middle. Ask your peers. Look for someone with a similar licensure in your state at a similar stature of business, something comparable. The statistics are really a black box here when it comes to the IRS. Is there anything else to add about compliance requirements or payroll? No. I don't think so. Okay. There's a number of questions on distributions, and so we can dig into that in the q and a. Perfect. This next slide here is a summary. So a great one just as a take home when you get this slide deck. Take a review of this. It covers everything we've covered, and just relays out those pros and cons. Andrew, I'll hand it back over to you just to spend 2 minutes on how Heard here helps providers, and then we can go into q and a. Cool. Yeah. Really quickly also, Isabelle just dropped the s corp calculator into the chat. And so that's a very, very high level overview to get a quick read. I know there's a couple questions on that, so feel free to use that. But the s corp assessment that we provide is much more, in-depth, in your decision making. So you have an opportunity to to book a free consult here with her. We'll drop the link into the chat for us. Is that right? Link into the chat to book a consult or on the screen because we have this. very fancy yeah. We have this very fancy software that we're using here. We can provide you an s corp assessment to help you understand personalized tax savings. We just, again, launched simple bank accounts for folks, and so it's an easier way if you haven't yet set up a business bank account or formed a business entity to do that, to help you set it up and manage all of your money and finances in one place. And, of course, our nuts and bolts is the bookkeeping and tax services that we provide both on a quarterly basis and an annual basis, personalized quarterly tax estimates, and then both business and personal tax return for you and your family or your partner or if you're filing single. And we have an amazing offer here today for our Simple Practice folks who we love dearly. Free catch up bookkeeping and that's gonna enable you to save about $600 to get all of your work caught up. We have a bookkeeping team on our side and so it costs us money to catch everybody up and so this is an opportunity to folks go back to school and things get busy again. And then we will provide 20% off any annual plan as well, which is about an additional 612 in tax savings or in savings rather. Forrest, anything else to add here? Well, it is tax savings because Herta is tax deductible. So I was like to remind. Yes. folks more nuance if we're counting the tax savings. Yeah. Yes. So I always like to clarify in these consultations. You're not gonna get the same question and answer that Andrew had been going through here today. Right? They're able to answer high level questions about Heard, how we can help you, but they're not CPAs or accountants by trade like Andrew and I. And so just keep that in mind. We don't want folks to go in with the wrong expectations, but that's why we're coming back, on the eighteenth to do that. The only other piece I will mention about those consults is they can help analyze that s corp savings assessment you do. The team is very well versed in s corps and the savings. And so bring in some if you have high level questions about that calculator, they can help run it for you. But those really technical questions, right, are usually best for our wonderful accountant and CPAs, within their team. Well, great. I know Morgan has helped us bubble up a few questions for those. I know it's now noon. Hope you enjoyed today, and thanks for spending, an hour or so with us. Said definitely register for this AMA. Ask me anything on the nineteenth. We did one for annual taxes. I grabbed 500 people register and had a bunch of great questions to go through. So we'll distill down these topics more, go into more detail, and thank you for joining. But for those who wanna stick around, Andrew and I are gonna answer, a few questions in case you don't have a session. One of the ones that came up earlier is how does being an s corp change or impact Social Security now, aka what I'm putting into it, and in the future when I receive it? Sole proprietorships have self employment tax, which include Social Security. S corps are paying into Social Security via that new w two salary that you're paying yourself. So both are still going into it, but those amounts are going to slightly vary. Andrew, if there's any that you wanna, I like, call them out. I'm going through those two right now. Yeah. There's a lot of questions on distributions and how much can I take from distribution? So it's like we have the salary that we're paying for us. You talked a lot through payroll and the w two, but there's also distributions that you take on top of that. And so it's not just a salary that you take and pay yourself. You also have distributions that you're taking. Right? And so think about how you're paying yourself now if you're a sole proprietor. If you're a sole proprietor, at the end of the month, you probably calculate after expenses based on whatever formula you have in place right now. I can pay myself this much, and all you do is transfer that money from your business or your personal account over to your other personal account, whether it's your personal checking or savings, whatever you want to do there. Again, my recommendation on those distributions as well as you are still responsible responsible responsible for paying quarterly tax estimates, and so you'll have federal and for the folks that are, having state taxes and for folks that have city taxes, you still have to pay those, but it'll be 15.3% less because you don't have those self employment taxes. What is the cadence that you can take distributions? You can do them weekly. You can do them monthly. You could do them daily. You could do them quarterly. You could do them once a year. But one thing to note is that, you can't go beyond your basis. And so what the basis is in your s corp is the cash that you put in, and that's gonna go up by the profit that the actual company earns, and that's gonna go down by the actual distributions that you take in by any losses. And that can be a little bit more complex, and I think we do have some content on that. But you can take distributions up to your basis if you go over that you would be penalized and so, make sure that you have a good sense of what that, basis is before you overtake distribution stuff. Another great question we had is, what do I do if my profit is very variable or fluctuates? Is an s corp right decision? I would say if your s corp is fluctuating below and above a 100,000 in profit, likely would not recommend an s corporation. Right? However, if, say, it's fluctuating above and below $200,000 in profit, you're well within that threshold. You know, because if you're projecting a 100,000 in profit, but you know that might actually be 70 or 80 because of some things in flux or, maybe you're in a type of therapy where your your, clientele is changing a lot, and so your caseload varies until you're well above that consistency side of a 100,000. Normally, wouldn't say, best route. I think it's another opportunity to bring up too. If you become an s corp and, say, you decide you're gonna cut down your practice to part time, you can remove or revoke your s corp tax status. But I use a corny analogy. It's not like turning off a light. Right? There are some steps that you need to take. There is a best time of year usually to do it. And then as well as when you revoke your s corp status, there's usually a time frame the IRS says, hey, Andrew. You can't become an s corp again until x y z date. So don't think of an s corp like a trial. Right? But at the same time, you're not locked in for it for life. There are life and practice changes that do happen, and it's keeping in mind, like, we'll help providers, not all the time, but time to time. It's like, alright. I am an s corp now, but I don't wanna be an s corp anymore either, a, like, Andrew talked to the client earlier who just didn't really think the compliance requirements are worth it, or b, you know, oh, I'm becoming a a new mom, and I'm lowering my hours, and therefore, I'm not gonna have that same profit level. Anything else, Andrew? You're saying I know team's been answering a bunch in the q and a, We've is awesome. so many questions. I know. I'm I'm just reading through there. And I saw someone asking for the AMA link that's pinned to the chat, thanks to Isabel. A comment on quarterly taxes as an s corp you pay from your personal business account. Again, these are pass through taxes, and they're passed through back to your personal income tax return. And so, this is related to your personal and annual individual income tax liability. And so recommendation for quarterly taxes, if you're paying them to the federal and the state level, to make go ahead and make that payment through your personal accounts. That is a best practice, of course. Things do happen, but do plan to make those quarterly tax payments through your personal account. And, Forrest, that pros and cons slide we'll have in the, slides. Let me share it back out. Christina, I run a PLLC with a partner. Should we use a 100 k's estimate or double it? I see Mike is going to it right now. But, yeah, we're not the best experts on partnerships, so I would also recommend just running that by CPA as partnerships. Well, fantastic. Andrew, Isabelle, anything you want from a closeout? I know we can see you in the, the backstage, which always makes me feel like a a newscaster up here. No. Well, Andrew, as our, CEO and cofounder, we'll have you maybe say any words you want to, close this out today. You're awesome. Thank you for joining to listen to two people talk about, accounting. Again, the big takeaway here is that an s corp may not be right for everyone. There are gonna be lots of different recommendations that you hear. So do your own research, get comfortable with the types of services that you want to be, using or provided if you do decide to take that path forward. And, again, it's not an expectation that you're here to become an s corp today. And so it's really, reflective of who you are as an entrepreneur and a small business owner to take time out of your day to come listen to two people talk about accounting. And so just infinitely grateful for that and the time from Simple Practice and the folks backstage. So thank you for all you do, both her team and Simple Practice team. We're very grateful for you. And, hopefully, we'll see you in August. And Andrew and I might be even in the same room. We're not even in the same country now. We might be in the same room. Who knows? If Natasha will let me a wonderful where, you. are. Yeah. Alright. Have a great, day. Bye. everyone. Bye.