This episode is a live mini-workshop recorded with members of the Escapee Collective (and released here because it was too useful to keep inside the community).

My guest Diane Kennedy (CPA) breaks down what most new escapees get wrong about taxes and business structure — and why the real first question isn’t “LLC or S-Corp?”

It’s: Are you building a business… or replacing a paycheck?

From there, we get into the most common setup for solopreneurs (LLC + S-Corp election), how to think about deductions without getting cute, and why “keeping it small and keeping it all” is the solopreneur cheat code.

We also bring in Lisa Dini from Lettuce, who explains how they help solos run the S-Corp model without turning you into an accountant.

Heads up: This is educational, not legal/tax advice. Talk to your pro for your situation.

What you’ll learn

1. The real first question for escapees: build a business vs replace a paycheck
2. Why “LLC vs S-Corp” is usually the wrong framing (and what Diane recommends instead)
3. Why Diane believes you should set up an LLC early (asset protection + flexibility)
4. The 3 “buckets” of income for solopreneurs: Earned, Leveraged, & Passive (the holy grail)
5. A simple way to think about deductions: ordinary + necessary (and how to find write-offs you already have)
6. How S-Corps can help you keep more of what you earn (salary vs distributions, plus other benefits discussed)
7. Real-world Q&A on: partners, joint ventures, and multi-state setups, California “special rules” , Schedule C vs S-Corp timing, Solo 401(k) and related retirement ideas

Resources Mentioned:

Lettuce.co: https://hubs.ly/Q03Yz8KX0

Tax Calc: https://hubs.ly/Q03Yz8Rf0

Tax Prep: https://hubs.ly/Q03Yz8JY0

Guests

Diane Kennedy

CPA and long-time solopreneur. Diane helps business owners structure their business and income in smarter ways so they can keep more of what they earn and operate like a real business.

Lisa Dini (Lettuce)

Lettuce helps solopreneurs run an S-Corp model efficiently, without drowning in admin and accounting work.

Okay, there are six people out there.

Greetings everyone. see that we've got seven participants, seven folks in the audience out there. But I'm technology challenged at the moment to figure out how I can get you to answer questions. So anybody that's in the audience out there, is there a way for you to others chat? Okay.

All right, Diane, can you see the chat on the side? Okay. All right, so we're... I see, yes, studio chat. You may just have to drop your name in there if you drop something into the chat so we know who you are.

can. Yeah, I've got that open and I can see I don't see who's in here but I see people. Hi everybody.

All right. I'm, thought I had this figured out before, but now we're live. We've got an audience. It is being recorded. If somebody isn't out there, I wasn't able to, we'll make sure that the full recording is available to the community. Diane, welcome to the collective. I know you're relatively new with, with working with lettuce. I thought, man, this is a great time of the year to have you come in. We've got taxes, we got business structures.

And the way I usually like to do these workshops is I'm going to turn the floor over to you. And if you can just, you know, we get kind of outlined through for things that you wanted to touch on. Let's walk through this. may interrupt you on that occasion just to ask some clarifying questions if we have to, but then we'll have some Q &A at the end. But, you know, really the floor is yours. Educate us. Tell us where we're wasting our money, how we should be thinking about these things in a better way.

And I know Lisa's out there at the end. We've got some offers for some folks too that stick with us till the end. So anyway, with that less than eloquent introduction, Diane, welcome and the floor is yours.

Thank you. Okay. Well, I'm Diane Kennedy. I'm a CPA and it's kind of interesting because I know we talk about corporate escapees and we talk about the importance of being a solopreneur and some of the advantages. And I kind of got, I am also a solopreneur, but I got here in an unusual way. I started off with a big bricks and mortar CPA firm that was my own. founded it. And it was back in the day when everybody went to the office and worked from an office and as a CPA firm.

And what I found was I was working really, really hard. It was time and I didn't make as much money as I thought I should. And I spent more time managing people than I really did helping clients. So for me, that was a big issue. I ended up selling that practice and then growing it a different way. And this time I came back as a solopreneur. It's now been, I have to think for a second, it's been 18 years that I've been a solopreneur now.

I do have other people I work with that they're always on contract basis. They come in with special projects and I work with just clients that I really like working with. And I've also built a business along with it. That's one of the things I wanted to touch on today is being a solopreneur doesn't mean that you're just necessarily working for a paycheck. Only it's just that you're doing it for somebody else and you're not getting a W-2. It can mean you can actually build a business. And so I wanted to kind of go through all of those.

Lisa had given me a heads up. Alisa's from lettuce. And I think your audience knows her. and she said, I bet you anything, Brett's going to ask the question. Should people be an LLC or an S corporation? And so let me just start there. And the answer is that's the second question you need to ask. The first one is when you're a corporate escapee, when you're leaving, are you going to build a business or are you replacing a paycheck? And neither one is right or wrong. It's just.

Interesting, okay.

that's going to steer the rest of the conversation. then let's answer that question. Should you be an LLC or an S corporation? Well, an LLC is a state legal form. You might form a New York LLC if you live there or a California LLC or Texas LLC. Those are state forms. But there's actually no such thing as an LLC tax return. It's a chameleon. It can elect to be a C Corp, an S Corp or

not make any election at all and the IRS chooses for you. So it doesn't really have anything to do with taxes. An S corporation is an election that you make. So if somebody asks me, should I be an LLC or an S corporation? I'm a solopreneur, which is best? And the answer is both. You form an LLC and then you elect to be taxed as an S corporation. In almost all cases, that's going to be the best answer.

The LLC is going to give you special asset protection and it gives you flexibility so that you can elect that S corp treatment. The bottom line though is that I think it's important to set that up because that's the basics of what you need to do to get going with your business. And then take a look at that question. Do I want to build a business or am I replacing a paycheck? If you're a freelancer, which is what I call somebody who's

Interesting.

basically looking for paying the bills and you know, maybe they're taking that money and then they're investing it for their future and retirement funds or stock funds or maybe buying real estate. They're doing something else with it, but they're not really building a business that someday sustains them beyond them working. And like I said, either way works. If you want to have a business though, right from the start, my recommendation is, that you look at the different ways you can make money and

Earned income is absolutely the first one we all think about. That's where you get paid for the work you're doing. And it also is if you don't show up, you don't do the work, you don't get paid. Then look at the other, I call them buckets of income you can make. One is leveraged income. And leveraged could be where you do something like, I do a Wednesday class that I teach and I get, I do it once I'm just there on Wednesdays. And yet I get paid by

many people for being on that Wednesday class. So that's leveraging my time. I get paid more than if I sat and did a tax return because I'm leveraging out the information. By the way, I also record that and package it and put it in things that you later sell. So I'm always looking for how can I leverage. So leveraged income, think about what it is you're doing. especially if you're just getting started, what is it that you have that is unique that you are providing for your customers or your clients?

how can you package something that allows you to leverage your time? It could also be something as simple as having other people do some of the work for you. Think about it, you go in to see your doctor. Your doctor's not the one who takes your copay and who weighs and measures you and takes your blood pressure and does all that. There's other people that do those things. So that when the doctor sees you, they're focused just on why you happen to be there. And that's leveraging the doctor's time.

So whatever your business is as a solopreneur, leverage that time as well. Unless you really wanna be a bookkeeper, find somebody else to help you with your bookkeeping. Unless you really wanna prepare tax returns, find somebody else to help you with your tax returns. And that's one of the reasons that I'm working with Lettuce is because they have a very good turnkey program for doing those things so people can focus on what they do best. That's starting to leverage your time.

And then finally, I mean, the holy grail of business is passive, where you do something once and then it provides income for years. And that could be with IP, it could be with SaaS, software is the solution. It could be with books or home study courses that you've done. Look for those kinds of things. Once you put that question in your head, you'll start finding those solutions. The reason I stress that, why isn't she talking about taxes?

It's because each of those kinds of income have their own tax benefits. So depending on how you want to set your business up, if it's all going to be earned income, great. Then we're going to be looking for tax-free employee benefits. We're going to be looking for timing on when you pay yourself and how much you pay yourself. And we're going to be looking for ways of sheltering that income as much as you can, maybe with retirement accounts. But if we're looking at other forms of income,

there's quite likely we're going to be able to change the characterization of income so it all doesn't have to be earned income, which is the highest tax rate there is. So you can actually lower your tax rate if you become a business. And that's where you always hear these stories that the tax bill comes out and say, they're just going to help big business. And the fact is it's not just for big business. It's for anybody who acts like a business. That's why we have those kinds of tax breaks.

So I covered about four or five things there really quickly. Should we go over any of that or get follow up?

Interesting.

Yeah, we did have a couple of questions come up, but before we get there, because one of the things that's been interesting kind of evolving over the last 12 months with with this group is it's kind of segmenting a little bit where some of the folks are, you know, I'll call them the 3k a month, right? Just I don't need to replace my corporate income. Just, you know, I think of it's a, you know, a new mom, right, that they need some income, but doesn't need to go back to the office. So they're looking at 3k, then the next kind of segment is the 10k.

okay. Yeah.

I'm replace my corporate income and then the 25 K I really want to build something. And I think you kind of answered that with the different tax, depending on where the revenue is coming from, it's going to make a difference. But is there a starting before, do you need an LLC, you know, with your first dollar or does it make sense once you decide that you're going to do this ongoing? So, and I've heard different theories and I always tell people I am not an accountant or a lawyer. So

after this for you on the spot with you know does when you need the l c

Maybe I can share a story. A friend of mine who's an attorney was speaking San Francisco. he, you know, being an attorney was really stressing, don't start anything until you have asset protection. And a lady came up to him, she just started a retail store in San Francisco. She said she put every dime she had into that store. And she realized now she should probably have an LLC, but she didn't have the money to do it. Everything was there. A month later, she called him in his office and he was happy. It's like, good, she's ready to move forward.

Okay.

And she said, I'm being sued. What can I do now? And you know what the answer was? Nothing. So I mean, in today's world, I think you need an LLC right from the get go. Now, do you need to elect S-corp treatment right away? Maybe not. But this is the beauty of an LLC is once it's in place, know, typically you have 75 days is what the code tells us that we need to elect the tax treatment. But really there's this really

You just need to start it now and get going. But I think if, forget the taxes, the asset protection alone in today's world, I think is really important. The LLC is, I mean, you still need to run it like an LLC. And I do see this mistake. People will buy it and then think, okay, now I'm safe. I can do whatever I want. But you have to follow certain, what we call corporate formalities. You keep your money separate. Your personal and your business are separate.

You need to disclose that whenever you sign any legal documents that you're signing as a manager of the LLC or a member of the LLC, not in your personal name, because then it looks like you're personally guaranteeing it. You need to make that public disclosure. You need to keep your book separate. You need to have a separate credit card, even to the point of like I tell people, well, it's a new business. I can't get a card yet. Great. Make your visa, your personal and your master cards for the business. Just keep them separate. So we're not term is commingling our money.

That can really sink people when they don't have those kinds of things. Additionally, almost every state requires an annual meeting for S corporations. Not every state requires it for LLCs, but we recommend for our clients, everybody has an annual meeting. It's an easy thing to do. And when you have that meeting, you prove that you're acting like a business. And included in that are things like we opened a bank account here, we got a loan here.

We decided we were gonna buy a vehicle for there. We got a new cell phone plan. It's just major decisions and you just list those in your minutes. Now, here's the beauty of that annual meeting is it's a write-off. So you could have that annual meeting, even as a solopreneur and people say, how can I have a meeting with myself? Well, just do it. You're gonna need to do this. So you go to Hawaii and you have your annual meeting. The day you spend on your annual meeting, that part of the trip is deductible.

Thank

Okay.

So you're picking up a deduction. It's going to save you with asset protection. it also, if the IRS audits you, one of the first things they're going to ask for is the minutes for your meeting. If you have a business, they're going to ask for the minutes. Because they want to see that you have acted in a business-like manner, that if there's expenses, that the business has taken them on, you haven't just later on said, we'll just throw these things on the tax return. They want to see documentation and proof that you're moving forward.

properly. So it saves you and you get a tax write-off. That's the best of all worlds.

It's good. That's a great answer too. And probably the most complete answer that we've had or I've gotten from anybody on that process, is awesome. All So before we go too far, I'm running behind on some of these questions. Okay. It's in the chat. Let's see. Yeah. If you click on...

Okay, yeah, I don't see the questions, so you'll have to feed me them.

in the chat.

All I see is a hello.

public chat and then open up the one box. If not, can read them to you here.

Okay, yeah, I think so.

Okay. Yeah, so, yeah, if you have a partner, if you're not a solopreneur, if there's two of you, you can still have an LLC and you can still have an S corporation. There's a couple of things to think about when you have a partner. One is that any benefits that you're going to provide need to be for all employees equally. So if you're an S corporation, have a partner and both employees of that, then it can't be, well, I need a really good medical insurance plan for whatever reason.

your partner has to have the same one or it's not going to be a deduction. Maybe your partner's older and they're really concerned about a retirement plan. They want to really fund it hard. Well, you're going to have to get the same plan even if you don't really care. So it just needs to be equal in what you're doing for what we call in the code non-discriminatory benefits. So that's retirement plan. That's education assistance. That is the new, you might've heard of the Trump accounts where a business can fund a child.

Interesting.

Yeah, and maybe along those lines, I think we're going to see more and more of this where a lot of us are individual LLCs, but come together, not maybe not a formal joint venture, but we work together under an umbrella, even if it's not legal. Do we need to set up a separate structure for that? Or can we continue to operate as two individual business just partnered together on certain opportunities? Does that make sense? Yeah.

Mm-hmm.

Yeah, yeah, okay. Under the code, we call that a joint venture. And so you don't have to have a formal partnership between two LLCs. It can just be a document, but you need to act like it's a partnership. So anything that comes in, you're splitting according to whatever the joint venture is, 50-50 or whatever it is. And so you do need coordination when you're filing your tax return, obviously, and how you're splitting that up. But that's not uncommon to see joint ventures.

Okay. And I think we're going to see more and more of that just to just make sense where we partner in and out with with different people. All right. So Christine asked I had an S corp for a couple of decades, but no LLC, would you see it necessary for legal protection? Personally, I think you answered that but maybe I'll let you answer it again.

So is she thinking that continue or elect S corp treatment or continue the LLC?

christine if you're out there maybe you can clarify for us i don't she says i don't have an LLC

Not sure.

Okay.

okay. You know, I don't know what kind of business you have. And there's some that are just really bulletproof. You don't have to worry about being sued so much because it's always anonymous. But I've got to tell you, if you're working with clients in any form, I personally think you need an LLC, just because you never know if something's going to go wrong. And additionally, it could be something as simple as you're running an errand for the business and you have a fender bender. And then all of a sudden somebody says, they've got a business.

Now I can sue them and I can get their business and personal. it's just in today's world, I like the LLC.

Okay, makes sense. I you've answered Jim's question. He said, what happens if things change mid-year, say, start with income, but more to other earning types? Obviously, you said you can go back and change that based on that, okay?

Yeah, just in case anybody wants to know, the form is 2553. And you'll notice there is a box. I mean, get an expert to help you with this. But it's not a difficult process anymore. You just need to make sure you're checking the right box. And they do ask you for a reason. Why are you late making this recommendation? And the one I always say is, well, there was a miscommunication. We didn't quite understand how much income was going to be. You just kind of make it like the communication was garbled. And I've never had one denied.

Yeah.

Okay, that's Nate said I did a retroactive S-corp election 2024. It was easy and saved me a ton of money. So that wasn't a question, but most more. Nate, always on top of things. Al, can you create the LLC in any state or does it have to be in your home state? And what if you have a partner in a different state?

in a lot of years.

Good job. Awesome. Thank you.

OK, a couple of really good questions. The first thing I would ask is either of you in California, because California has their own rules for this type of thing. And I'm going to assume that neither of you are in California. so, good. All right. All right. So what you're going to have to do is look at where the income is being earned. it does, especially if you're online, it gets a little confusing because.

Yes.

No, she said they are actually, she said they are Scalpel.

you know, maybe you're in Arizona and your partner is in Colorado. And so, well, do we set up an Arizona LLC or Colorado LLC? Personally, I'd go with whichever state is cheapest and to set it up and to run it. But then your partner is going to have to take whatever, let's say you live in Arizona and they live in Colorado, they're going to have to take that K-1, that's where it splits off and shows what the income or expenses are from the partnership. They're going to have to show that on their return and it will end up being Colorado income.

loss as a result of that. It's actually fairly simple. I would just make sure that your LLC is being set up with somebody who's actually working in the business. If you're in Arizona and Colorado, don't go set up one in Michigan. mean, it's like, it's just kind of random. If you don't even tie there, why would you do that?

sense. Okay.

And if anybody's listening from California, disregard all that. It's all different in California. California wants a piece no matter what. If one of you in California, it better be California LLC and everybody has to report in California.

Yeah, that's what I'll just said. I have done K1 for another one in state many times in CA, so I get that. and it's expensive. Awesome. All right, so now we're caught up on questions. Where else were we going to, where else did you want to take us? What else do need to know?

Yeah, Yup. Yup.

Well, you know, I think the other question that I get a lot is what's deductible? And the answer, the accountant's answer is always, depends. So that's what it is. I mean, as a CPA, I'm gonna deduct different things than you are, Brett, because you're a podcaster, you're an educator, you've got different expenses than I'm gonna have. So it depends on what your business is. And an expense is deductible if it's something that's ordinary and necessary to the production of income.

straight out of the code. And so it's something that it's going to vary. I like to look at where are my clients currently spending money because rather than going out and spending something, I bet you anything, a lot of that stuff you already have. I mean, you already have a cell phone, you have a ISP, you have a computer, you probably have a desk and a chair. mean, all of those things become deductible. And that's the best of all worlds when you find those expenses that you already have and you turn them into deduction.

So look at everywhere you spend money right now or have in the last three months and ask yourself, how could this be a business deduction? And maybe it isn't, maybe not everything can be a deduction, but challenge yourself a little bit and think about that. Maybe there's a way that this does actually help your business and what you're doing. Another story.

Yeah. And again, like I tend to be more. Yeah.

Another story if you got time for it. client who did a lot of what he did is public speaking, motivational speaking, and he traveled a lot and his wife was with him and she had kind of a shoe fetish. mean, seriously, she took a suitcase just for her shoes. And he asked me the question, how can we write off her shoes? And it's like, well, we've got to find a way that her shoes are part of her business. And she loved shoes. She loved talking about shoes. She loved showing pictures of her shoes. She put up a blog.

And she talked about the shoes. She talked about where she bought them, how you would accessorize with those kinds of shoes, when you would wear them, the pros and cons. don't know. I don't have that many pairs of shoes, so I don't understand at all. But when it was done and then she put links in her blog, it became a deduction because she monetized it. And then she needed to buy those shoes in order to take the picture and to be able to talk about those.

Thank

Thank

I'm not ever going to be able to write off my shoes as a CPA, but if you've got something that you are really passionate about and you're spending a lot of money on, maybe you need to think about a little offshoot side business that's going to allow you to get those write-offs. Like I said, I look at where's the money going anyway, because often that's where the passion is. And so how do we bring that into the business?

Yeah.

Yeah. And again, I think this is so time. We may have to bring you back on just a quarterly basis to hit with folks because again, you spending decades in corporate, right? You do your traditional, you got an accountant, they file the tax for them, all this, man, when you started getting multiple revenue streams, you've got expenses that I didn't, you made me think of a couple of things that I know that I haven't been included in the past. And it can get super complicated, super quick. And one of the things we want is to keep it, keep it simple. Right.

Yeah

That's what I know Lettuce in general does is help to keep it simple. yeah, there's probably a lot more opportunity than we're giving this credit for on the savings and the tax savings side.

Yeah, you know.

it's a mindset difference as much as anything, because you're absolutely right. As a W-2 employee, there's not a lot you can write off. You're used to just, okay, here's my mortgage interest or my property tax maybe, or I'm just taking a standard deduction. Maybe I've got some interest in dividends and that's it, a W-2 and we're done. But now all of a sudden we're looking at every part of your life and how can you turn those into deductions? I mean, even to the point of maybe you're helping support an elderly relative.

Is there a way they can do something for your business legitimately? And you now either put them on the payroll or you're paying them as independent contractor and it becomes a deduction for you. Most likely very little tax, if any, for them. There's a whole lot of changes that can happen when you change how you look at things.

Yeah, that's such good advice. Lisa had mentioned love that you were saying at the beginning about thinking business of one is building a business. Can you talk more about why that makes an S corp a good idea? Functionally, maybe how it works to help you keep more of what you earn. What is that?

The S-Corp, yeah, the S-Corp got a couple of things going for it. One is that you will take some in salary and some in distribution. just round number, usually it's about, what the IRS tells us to do, it has to be a reasonable salary. However, they do give you some leeway in the beginning because usually your profit isn't up that much and they realize you're building a business. We've got great case law on that, that you probably don't even need to a salary right at the beginning.

but let's say one third salary, two thirds then just stays as profit in the company. Now the salary is gonna have payroll tax, but that two thirds that you're getting doesn't have that. And you're used to being paid where everything has payroll tax. So now you have two thirds that doesn't, that's a savings. Plus we have this thing called the, I'm gonna get a little techie here for a second, 20 % QBI, qualified business income, or you might've heard it called a 199A.

What that is is whatever that business flow through income is, you get to take a deduction for 20%. So let's say that that flow through amount is, let's say you make a hundred thousand net and you take out 30,000 in salary, you've got 70,000 flow through 20%. You've got a $14,000 deduction that you don't have to do anything for. There's nothing like that. If you're a W-2 employee, or if you're an LLC, that's just being taxed as a sole proprietor.

Now in the beginning, like I said, maybe that's the best bet, but once you hit that, I mean, once you hit about 50,000, you really do need to be an S-corp because you can start making that division between salary and the distributions that aren't going to be taxable. I mean, I don't have the payroll tax on it. And you get that QBI deduction as well. The other thing you can, there's a couple other tricks you can do with S-corps that you can't with others. For example, you can, you can change your salary if you've got a year where you really want to hit the retirement account.

hard, you raise your salary. You can't do those kinds of things if you just a regular straight LLC sole proprietorship. So the S corporation gives you flexibility that you don't normally have. In fact, with my clients, I always, always, always start them off with LLC S. And then as they grow, and I mean, I have clients who are making seven figures net, and they still have an LLC S.

But then what we do is we add another structure on the back end of it or something else that allows them to pay less tax. But always lead with that S-corp because it's got great flexibility and there's no other structure like it. Nothing else gives you that flexibility.

Interesting. No, that's good. And then Christine's got a question here that I think part of us, I think is going to be monetized different streams and it may be a completely different business. She said, I've monetized a hobby that I was hiding in when I was uncertain about my core biz. I've been selling my peanut brittle in Illinois instead of an LLC. I was directed by the state to license a name kind of like a DBA under my S-Corp. Is that, it really wasn't a question, I guess, but about it. Okay, go ahead.

Yeah, absolutely. I was just going to say, yeah, the DBA, absolutely. I personally have some too. I understand exactly how that works. Sometimes it's easier to run things with the DBA rather than going and setting up a whole new entity. And when you do that, well, let's say you're starting off some side venture that maybe has a loss in the beginning. You can use that loss to offset other income. It can be a really brilliant strategy. So yeah, I understand. And I love peanut brittle.

Exactly. But again, think that's again, consult with your professional if you want to go through these process. But I mean, you know, part of my transition into

Yeah

with the corporate escapee now is it's going to have multiple revenue streams that are very different than what it was when I was doing the solo consulting or the fractional leadership. And it gets confusing right on where it's still all coming from the same, but again, better accounting. like I said, I know this is the year and I've talked to Lisa about this. 2026 is the year I get my act together with finally taking advantage of all this, the tax saving that's out there. So, all right.

So let's see, we've got more questions. Nate, I set up a solo 401k this year. Another cool thing you can do with the S-Corp. And Christine said that I only need one set of biz taxes. So maybe some other things coming off the S-Corp that are tools or advantages that you may not have just as a traditional LLC. I'm guessing the 401k is one of those.

Yeah, the solo 401k. There is a big difference between a solo 401k and a regular 401k. With the solo, you're able to invest in other things. I mean, you can invest in real estate. There's a number of things you can do. And with a 401k, you are restricted in what you can do more or less. For the person who just said they had a solo 401k, probably outside the scope of what we're talking about today. But just you might want to ask if you could add a clause in there to allow you to have a raw.

solo 401k for part of that. A Roth solo 401k has different attributes in a Roth IRA. And down the line, it might be something that is really useful for investing. So it has to do with you have to have the regular solo first, but then sometimes they'll let you carve out discretionary amount that you want to put into a solo Roth as well. That's just a question to ask. You don't get a deduction for it right away, but it does grow tax free.

Yeah, that makes sense too. Cause one of the things we're thinking about along those lines, and I don't know if the S corp has the, the five 29 plan, right? As we're starting to have grandkids, we want to set aside. So I haven't looked into, there a path through the business to do that versus independently?

yeah.

Yeah, the 529 is most likely going to be individual. Just a comment on that. Make sure you check whatever state you're putting that in, like your grandkids are in a different state. And often states have got really nice tax deductions you can take at the state level. But check on that as well. People forget about that one. Yeah, a number of states have got great deductions if you do a 529.

Okay.

keep all your options. just when you go solo, you didn't think that the tax would be one of the bigger opportunities for you, but it is. like I said, I need to get more, again, having conversations with you, Lisa helps me better articulate the true value, right? Cause I see the freedom in you, one of the OGs of going solo, 18 years ago, right? I think you may have set the record for going solo, but there's just so many other advantages to it that again, I keep getting.

It

Yeah.

folks fixated on, well, I've got to make the money, right? Got to make the money, but then they'll figure out everything after the fact. But I think it just makes sense to set this up and then it can grow with you. Yeah.

Keep it small, keep it small and keep it all. That's the solopreneur thing. You will work less hard, you will make more money, you will pay less taxes and you will have more free time. Keep it small and keep it all.

Yeah, I just noted that it's going to be probably the podcast episode will lead with the title. I think we had a couple more questions come in. Oh, Nate said, yep, he did have a rock with that 401k. Christine, my best years my S corpus offset any W to income earned. So yeah, thank you folks for chiming in through actual use cases of folks that are using it.

good. Good, good.

L did have a follow up is using the schedule C the wrong way for early. You book your income, you take your expenses that good if you're not making much.

Okay, so the schedule C is sole proprietorship. Again, my two cents, just because I've been in the business long enough that I've seen what can go wrong. And I really do recommend people get an LLC right away. And so if you have an LLC that hasn't elected how it's gonna be taxed, it's going to be on the sole proprietorship. The same form is just that you have some state asset protection that goes along with that. So yeah, you can do that, especially in the beginning.

You are limited in your options with the sole proprietorship. Probably you won't be able to get a retirement account, for example, because it has to do with the taxable income and the sole proprietorship and the way it's calculated. But you still are, it's a place for you to record your income and your expenses.

Okay, hopefully that made sense and made sense in theory. Let's see, I did have one follow up. Even in zero income years, filing for my S corp has had significant tax benefits. yeah, so interesting.

Yeah.

Yeah, yeah, yeah, because I think that they have a W2 job as well. And so they're getting offset with that. Let me just throw this out. As an S-Corp, statistically, you have a one third chance of being audited that a sole proprietorship does. yeah, yeah, so it's three times as more likely to be audited if you have a sole proprietorship or schedule C versus an S-Corporation.

Yeah.

Okay.

The reason is really simple. It's because in order to audit an S corporation, you need to have somebody who's a trained accountant because they have a balance sheet. are accounting things in there, whereas a sole proprietorship is just income minus expenses. And so they don't have to have trained accountants doing the audit. And right now there's a huge shortage of accountants working at the IRS. So they don't have the people to do it.

No interest.

When you first said that, I'm glad you provided the context. like, cause wow, well one third of all S-corps get audited. doesn't sound... I got it after it. I was a little slow on today, but... It makes sense. No, again, I'll...

No, no, no. Okay, yeah, I said that kind of weird. Yeah. Yeah, yeah. I set up weird. You know, let me throw another idea out here too, as well. is the, when is it time to be an S-Corp? You know, as soon as you're an S-Corporation, businesses and especially banks take you more seriously. And it's much easier to start building your business credit and then apply for loans down the road.

Yeah.

It used to be you couldn't even build business credit with a sole proprietorship, but you can now, but it still is a rocky road. I personally think it's better to start off with that. Maybe it feels like that's a lot of structure right at the beginning, but the benefits there, know, less chance of audit, you're set up for success as you move forward and banks are going to take you more seriously.

Yeah, again might as well have the flexibility of the future. You never know where right said some people just want to replace a few dollars, but Yeah, I think it just makes way too much sense. So alright times flying by it. Was there any other big topics Diane? didn't hit

Yep, exactly.

You know, I had some notes and I think we covered everything that I wanted to talk about. Thank you.

I kind of took us down a meandering path, I think again, super insightful. Exactly. And we can't talk for more than an hour because then my head hurts after doing it. again, hopefully for the folks out there, and again, even if you're not on the live to.

That's that's how tax is so

Yeah.

think through this, I mean, because there are some real advantages to do this and, let us win have started a company if there wasn't value to doing what they do as well. So Lisa, if you're still out there, I know you had some year end stuff offers. I'm going to bring you in or if you can pop back on.

Hey, there she is.

am I off mute? Okay. Yeah, I just wanted to say, well, first of all, thank both of you. This is a really interesting conversation. Some really good tips. As I said to Diane, even from my own business, every time I talk to her, I walk away with a new tip. But I think what we didn't cover today is sometimes running an S-corp can be a lot of work for a business of one. And I know most of us didn't take this step out into being on our own to be accountants, unlike Diane.

Nope, you're good.

You're good.

Most of us did not follow that path. let us, as you said, Brett, we built a company specifically for solopreneurs and to help automate and make an efficient option for solos to take advantage of the S-Corp opportunity. I see Christine's note here that to hire and pay for professional accounting. But my personal story is I asked three accountants if I should become an S-Corp and they all told me no.

for many different reasons, for things like it didn't fit their business or they weren't trained in businesses or one, or they were more conservative than Diane or Lettuce will be on what a reasonable salary is. And so Lettuce was a real game changer for my business and we know it can be for other solos as well. So if you're...

And before I go too far with that, and Solo is built on with solopreneurs, right? At least that when I had the CEO on, he was, you know, the first 40 or 41 people were all either fractionals or contractors or non-employees. I know some people have transitioned to employees at this point, but

That's right.

He's building the business of the future. You guys are building the business of the future. And so that's what I like is your what's that drink your own wine, eat your own dog food, whatever saying that you want to use is that, you're built it for your, your, your team, right. Which, which makes sense. So anyway, I didn't want that.

you

I appreciate that Brett. In fact, I was a lettuce customer and then became a consultant for them. And I'm actually still a consultant. I have other clients. But I believe so much in educating people about this opportunity because I know I was leaving money on the table that this is such a passion place for me. I love doing this client work so much. So to that end, check us out. I put some links in the chat for our tax calculator for the main page for a free month.

And the other one I will leave everybody with is we know everyone's not in S-Corp yet, or maybe you weren't ready. Maybe you've just escaped and, but you've been a good sole prop for this year. We do also have a tax prep service for sole props that we're going to offer to your group rep for a discounted rate. The off the shelf rate will be 7.95, but we'll add a link where your team or your group can get it at just $500. And that'll be, you know, full tax prep.

Awesome.

and filing with a call with one of our experts in a business assessment.

And send me those links. can send me an email. I'll make sure I post it into the chats as well. And also put it in the show notes for folks. If you're okay with me broadcasting those.

Absolutely, please do.

And along those lines is that tax, is that just if you were sole proper, you guys aren't getting into the personal taxes yet, right? Or are you getting? Okay. Next time you come on, we'll ask that question. Because again, it makes one stop shop is, you know, is I'm looking for. So, all right.

It might be...

You

Yeah. You know, that's funny. We were just talking about it because I know we did it last year for our S-Corp customers.

Okay. Interesting. Yeah, I know. Like I said, I know we got somebody tackling the tax space. Now we need somebody to tackle the insurance space. So maybe when you guys are done conquering his, we'll get some folks coming after the insurer.

Well, I don't know if you saw the news earlier this year that lettuce actually acquired be solo, which was working on that challenge. So stay tuned.

And no, that wasn't a planted question either. All right. We'll really appreciate the time from the both of you. And Diane, this was super informative. Anybody has any other questions? I'm assuming they can connect with you or let us, right? I'll put contact information. I'll put them in the community and then I'll also put it in the show notes that anybody listening can reach out directly.

You

Brett Trainor (41:39.119)

Awesome. All right. Any last chance, any last questions from our, our live studio audience, which I've never said in my life before. So that's kind of cool, but going orange. Yeah.

We're happy to be part of the first.

love all the questions. mean, it just lets me know where people are thinking and, you know, make sure that we cover all the points.

Awesome, awesome, awesome. Well, this was super helpful and.

Again, we'll make sure you guys aren't strangers because this is every time we get a new wave of folks, it'll just make sense to have bring in experts to talk about this in Diane. I don't know if you've ever read the book, who not how, but that's exact. If you haven't read it, take a look at it because that's exactly what our model is. We want to be the who's that we like to do and we'll, you know, we'll figure out the how, but for everything that we'd like to, like I said, we probably don't want to do our own tax returns 100 % right. But there is a who like you that loves to do it. Right. So.

It's all, it's more specialization. get to focus on what we like to do and what we're good at. So awesome. All right. Well, thank you everybody for your time. Thank you for the patience of getting this up and running and we'll talk to everybody soon.

Happy Holidays everybody!

Cheers.