Welcome back in this video we're going to talk about different business entities and how you may want to structure your business entity when you're first starting out. So the first business entity that you can just structure is just use a sole proprietorship. Okay? You can set up a DBA to make it official. Okay? So you'll need a social security number and your address and personal info.

And then you can file for a federal tax ID or an employer ID number and Ei n, you can do this@irs.gov Okay, when you do this, you have to pay self employment taxes. Okay? So this is going to be similar to another business we're going to talk about, but just know that's the first thing you can do pretty simple. Basically, you just pay self employment taxes, but you you also get to write off all your business expenses. Okay, and then you only pay taxes on the amount of money that you know that you made. That wasn't business expenses.

Okay. Gotta do a partnership. Okay, similar to a sole proprietorship, the only difference is there's more than one person, okay? You create a partnership agreement, you can do all this on legalzoom.com or with your attorney. It's also a limited liability corporation. Okay, you set this up to your state.

Okay? So you want to consult the CPA or a tax attorney to make sure this is right for you. Okay, you also want to understand your federal and state taxes is going to be different everywhere. You'll need to file for an Ei n as well. Okay, the good thing about an LLC is you can reduce your personal liability, no one can ever sue you personally, they have to sue the business if you're operating as the business. So this is ideal for small businesses.

Now, one thing I will say is that there isn't a there's not a separate tax form for LLC, okay, so you end up filing taxes, the exact same way as a sole proprietorship, everything runs back to you personally. Okay, so you don't get to file taxes as a corporation and just pay yourself a certain amount and that's your personal taxes know, everything you make is still your personal tax liability. Okay? So this it does reduce your liability, okay. But at the same time, if let's say, you set up an LLC in the state of California, where they have an $800 a year, franchise minimum tax fee that you have to pay just to have a business in California, well, if you do that as an LLC, you have to pay that $800. As a sole proprietor, you don't.

So you want to make sure that you understand exactly what your state requires of your business before you decide on your business entity. The final thing you can do is set up a C corporation or an S corporation. Okay? Here you can set up a corporation where basically all the revenues and all the expenses go through the corporation, okay, that corporation is taxed. Separately, then you pay yourself a salary, okay? And then you're taxed on, you know, whatever you made personally on your personal taxes.

So this can be good. If you're in a state that requires that you pay $800 to own a business, then you might as well get the, you know, corporate tax advantage. Okay, so this is just one kind of thing that, you know, I've learned through my own experience that, you know, it's good to, it's good to know the differences. Okay. Now, there's lots of little intricacies for corporations, you have to have meetings and things like that, but you just need to look into this with your certain state or, you know, on the federal level as well, and just know exactly how you're going to be paying taxes, because it's a lot different than paying taxes as an as an employee. And if you're watching this video, and you've already made self employment money, then you know exactly what I'm talking about.

There's a whole nother you know, thing you have to do. So, those are the four different designations that you can have Figure out which one you want to go with, get some legal advice. And then you can go ahead and set up your business and get going.