By Marc Goodin, Founder & CEO of Storage Authority
Often the main reason you have a corporation is to limit your liability. But too often people do not consider each type of corporation's tax liability or tax consequence or personal situation.
I recall when I was getting paid a W2 income at my engineering company and I opened my first 2 self storage in 2007+_ . I was amazed that I did not end up paying any income tax for many years due to depreciation. Both self storage companies were and still are LLCs. Sixteen years later it may be time to switch to an S Corporation. Over time one's income and even the tax code can change which requires switching corporation type for tax or other advantages.
Presently I own 5 corporations that are all related to self storage. I do not take a w2 salary at any of them. I take profit dividends. They are all LLCs. I have watched my income taxes go from 0 for many years to $10,000 - $20,000 for many years. Now that my self storage rental profits have doubled over the past few years my income taxes are over double the median US median income. No complaints - the more taxes you pay means the more you make (to a point). But as Kevin O'Leary from shark tank says why pay more taxes than you need to?
And now with higher interest rates and paying more taxes than most Americans by a long shot, I decided now is the time to make sure I am not overpaying. The first thing I did was ask my 3 accountants. Not surprising no ideas from them as they are not tax strategies. Next, I checked out several video conferences, read multiple books on the subject, and learned a lot. I saw what appeared to be a lot of opportunities to save on taxes. One thing I found out is how you get paid can make a difference. If you get paid only with a W2 and it is " reasonable pay" for the work done may be an LLC is the best option. An S corp may have tax advantages for non-W2 income. If your business is part of your retirement IRA, or you are leaving large profits in the company long term or if you plan to raise capital you may need a C corporation.
If you have done your own research would have caught my oversimplification above. You can not have just an S Corp. First you have an LLC and then you file an additional Form to elect to have your LLC to be taxed as an S Corp.
Here is a previous blog on the Storage Authority website blog on some specific tax savings ideas: https://www.storageauthorityfranchise.com/post/3-incredible-tax-strategies-to-put-more-into-your-pocket
You need to understand the differences between a single-member LLC and an LLC (multimember). Including how taxes are done and tax savings opportunities.
Three important things I learned in my research are: 1) an S corp election for an LLC may help you reduce/eliminate 15% employment tax which in my case could be large savings. You can not save 100% of the employment tax because you are required to be on the company payroll and make a reasonable salary for the position.
Putting your company in a trust in a non-piercing state may provide more protection for your wealth. But the real thing I learned is you do not know what you do not know and you should get a professional tax strategist to guide you one on one.
So the answer to the question of what type of corporation should your business or self storage business be is I do not know. When a new Storage Authority franchisee asks us this question we suggested they ask their CPA (since we are tax experts). Most got the answer: LLC. But after some research on my own, it is not clear this is always the right answer. So like anything important to our franchisees, we getting the answers. I just hired a tax strategist team. Over the next 45 days, they will get us detailed answers. And to make sure I really understand the possibilities in more detail they will be reviewing my last 2 years of Income taxes and each of my companies for legal tax savings I am not taking advantage of.
It took a while to choose a tax strategist. Many were a 1-3 person firm. Eventually, I hired a firm with over 15 experts on their staff for a couple of reasons. I project that I will save between $30,000 to $60,000 in taxes in 2023. (and more in future years ) But I will have to implement the suggestions. By hiring a larger team they not only have more experience in the trenches but can help implement the changes. This is important to me because I do not want to use my fishing time to explain everything to accounts and lawyers who may or may not understand tax strategies. If I need to elect for my LLC to be taxed as S Corp they can do that paperwork for me. If I need to set up a trust in Wyoming and put my companies in the trust they can do it. And they can do these things correctly and efficiently because they have done it many times. I might even have them do my taxes moving forward.
My goal here is to make sure you have detailed conversations with your tax strategist before you choose or change a company type. I know this will cost money but even if you just save $15,000 a year that will be over $150,000 in 10 years!
I look forward to sharing some of my results in the next 60 days!
To your Success!
Disclaimer: I am not a CPA or Attorney. You should not make any tax or legal decisions based on the above information. The above is presented so you can have further detailed discussions with your legal and tax experts.
If you want to have a free 15-minute call to learn how Storage Authority helps insure your self storage business will crush the competition by being the Elite self storage facility in your area and how we help you find land and get your facility built please send me an email or call me – no appointment needed:
marc@StorageAuthorityFranchise.com or 860-830-6764
Get more information on Storage Authority Franchise at www.storageauthorityfranchise.com/opportunity3
Marc Goodin is the founder and President of Storage Authority Franchising. www.StorageAuthorityFranchise.com He owns 3 self-storages he designed, built, and manages. He has been helping others in the self-storage industry for over 25 years. He can be reached at marc@StorageAuthority.com or directly at 860-830-6764 to answer your franchising, development, marketing, sales, and operations questions. His best selling self storage books are available on Amazon.