Sharon, see all the Benjamins on the screen? I do. Is that my Christmas present from you, Jeremy? It is, it is. You know, it won't be long we won't have those anyway. I mean, we've got this digital currency. It's probably going to take the place of all these Benjamins at some point. I bet two generations, they probably won't even know what that is. As difficult a time as people have tracking their money now, I would suspect if you don't have something in hand, it's going to become even more difficult. I think that's what they want. They want it harder to track for us, but easier to track for them. And for taxes. So let's talk about taxes. That's your favorite topic. How does the S-Corporation save on taxes? You know, people really just don't understand this, especially our CRNA clients. They've heard some bantering about, you know, why CRNAs want to be taxed as S-Corporations. What does it do? But there's so much confusion around this topic. You really do need to understand the why. And Sharon, I think once we get done, it's a pretty simplistic answer. It is. This is a very good topic, and we've done this before in workshops, and it's very enlightening. Well, let's kind of talk about it. Let's talk about some of the basics. And one, you know, it depends on which state you're in, how you want to set up as a 1099 CRNA. So you've got an LLC in some states, which is a limited liability company, or in other states like North Carolina, you have to be a PLLC, which is a professional limited liability corporation. Now that is people who are professionals, such as advanced practice nurses, doctors, lawyers, accountants, all of us who are professionals out there. It basically gives you the liability protection of a corporation, but the pass-through benefits of a partnership. So one thing for people to know is when you set up an LLC or PLLC, you're not doing any tax planning at all. And I think that's, people don't really understand that. The LLC or the PLLC is really set up just to limit liability to a certain extent. To shield liability from your personal assets? Right. Okay. Right. Yeah. So it's more of that when you're a PLLC, because you're a professional or you've got even less of that liability protection, but, you know, we all carry, you know, in my business, we call it E&O insurance and you carry liability protection and so forth. But that's really what the LLC is for. But the S corporation is a completely separate entity. You can choose to set your business up as an S corporation, or, and this is the key, and this is what most CRNAs do that we see, if they've got an LLC or PLLC, you can choose how you want it taxed. Right. So the LLC can be taxed as what we call a disregarded entity, meaning it just flows through to your personal tax return. It doesn't do its own tax return. It just kind of flows from the LLC or PLLC over to your 1040. The S corp, when you choose to have it taxed as an S corp, then you have to do a completely separate tax return for that company called an 1120S. All the income goes into that S corporation. All the income is, comes out on that S corporation's 1120S. And then it flows from there over to your personal tax return through a K-1, which is another tax loan. Remember, LLC passed through entity, profits passed to the owner's personal tax return. S corps are also passed through entities, but there is a change in the way it's taxed. That's what we call the sizzle share. So when you're taxed as an S corp, the only thing that an S corp does for you, in most instances, is it saves you on the self-employment tax. We've got a whole section talking about the self-employment tax, how much it is. But remember, when you're W-2, that self-employment tax is split between you, the employee, and your employer. At 99, you pay both sides or 15.3%. Because you are the employer. Because you are the employer. And the employee. That's right. The advantage to the S corp is this, and this is really the biggest advantage. There are two ways to take money out of an S corp. One, establishing salary and taking it out as salary income. When you take it out of salary, and you'll remember this from our reasonable compensation module that we did, you have to establish a reasonable salary that the IRS would sign off and say that's reasonable. Sharon, if I paid you a $30,000 salary, is that reasonable? Would a full-time CRNA work for $30,000? Maybe for a month. Maybe for a month. That's right. Good answer. So that's what the S corp does, is you take a portion out of salary, and the rest out is distributions. Distributions, and there's confusion around this, distributions are taxable. They are taxable. A lot of times people think, just because I'm taking that as a distribution, I'm paying no tax on it. That is incorrect. You are paying income tax on it, but what you're saving is that self-employment tax of 15.3%. That's the sizzle to the S corp. That's why people do it. So there are some other reasonings where it helps in and so forth, but that's kind of the main thrust of what the S corp does for you. Actually, my first year is 1099. I'm pretty sure that it was just an LLC. In the second year, we started PLLC taxed as an S corp. There was money left on the table. I'm absolutely certain of it. Well, and a lot of people do that. Really, they do, because they just don't understand it. And the record keeping is more for an S corp or tax of an S corp LLC or PLLC than just a straight LLC. So you're getting these tax benefits, but there's more required from a record keeping standpoint. That can be helpful to a business to know a little bit more detailed information, but just know that when you get to the S corp, there are going to be more things that you've got to do. And if you've got to do more, you've either got to choose to do it yourself, or you've got to hire somebody to do it. And if you've got to hire somebody to do it, it takes away some of that tax savings, albeit it shouldn't take all of it in most situations. But just keep that in mind, that you do have to do some things differently with the S corp status than you do just a straight LLC. How do you do this? Say you've got your PLLC or LLC established. What do you do? Well, you register that PLLC, you file your articles of organization. If there's any state or other licensing that you've got to do, like here in North Carolina, Sharon, when you establish your PLLC, you actually have to go through the state nursing board to do that. Other states are like that. Some states don't require that. So you've got to make sure you check with your nursing board to see what the requirements are before you establish this PLLC, LLC. Once you've got that established, you've got a name for it. Then you apply for an EIN number, an employer identification number. Go to the IRS's website. You put in your information that spits you out an EIN number. That is the tax ID number, like your social security number for that new entity that you've created. The third part of that is you now have a PLLC or LLC with its own EIN. Then you have to submit another form to the IRS called a 2553. And you need to ask them to tax your PLLC as an S corporation. You should do that within 75 days or March 15th of the current year establishment of that LLC. So 75 days, you should do that. If you do it later than that, there is some special language that you can put on that 2553. But you as a CRNA probably aren't going to know that special language. So there's some things you can do, but you have to write it the correct way in order to do that after that period. Once you do that, you wait for months and months and months and months and months. And I'm just kidding. You wait for a long time on the IRS to say you can be an S corp. Sometimes, especially during COVID, we had a lot of people not ever receive that notice from the IRS. Submitting 2553s that didn't get processed was not abnormal during COVID. So there were people you're doing tax returns for. You submit them. They get rejected by the IRS because they don't have them as an S corp status. And then you've got to go back. It's been a nightmare since COVID, really has. So let's take a look at the savings here. So remember I said the sizzle, the reason most people do that is because it lowers the self-employment taxes. So remember, as an S corp, you've got to pay a reasonable salary to yourself. Then you can take the additional income out as distributions, which are not subjected to self-employment. So it can vary on the benefit, but let's, let's go down here. Let's say, before you got the S corp election, you had gas LLC, get it Sharon gas. I got it. You got it. Okay. I actually have a client who's the name of her company is gas LLC. So it's owned by Sue and Sue generates about $400,000 in profit in the LLC because Sue is not an S corp. She's going to pay on that $400,000 for $31,465 in self-employment taxes. Sue applies for the S corp status and she sets her salary at $120,000. That's what her accountant and her decided would be a reasonable salary. And she takes the rest of the 280 out in distributions. She then pays $18,360 in self-employment taxes. So just this one change saved her $13,000 in self-employment taxes. Now, again, this is just for illustrative purposes. We don't want anybody going out and making these decisions based on this. Okay. This is just an illustration, but it shows you the difference. And the reason people choose S corporations is because of this savings for self-employment taxes. Sharon, just so people know, before we end here, what does the self-employment tax pay for? Well, why don't you tell us Jeremy? It pays for Medicare and social security. So think about this. If you set your salary lower than the current wage base for social security, you could be affecting that social security that you get at retirement. Again, just know that if you're low-balling your salary, you need to understand that that could be a concern for people as they set to draw social security. This can make a difference. The other thing is making sure that it's reasonable. Have a reason for setting that salary where it is. But it is something to pay attention to.

digital currency

S-Corporations

tax benefits

self-employment taxes

record-keeping