What kind of business do you need?

Find out with Cathy Vartuli from http://www.TheIntimacyDojo and Reid Mihalko and http://www.ReidAboutSex.com.

Reid: Hello sex geeks! It’s the sex geek T-shirt. I’m Reid Mihalko from http://reidaboutsex.com/. Founder of http://www.sexgeeksummercamp.com/

Cathy: I’m Cathy Vartuli from https://theintimacydojo.com/

Reid: Also, employed by a secret corporation that we cannot name.

Cathy: Yes

Reid: Somewhere in San Jose.

Cathy: Not far from here as a matter of fact.

Reid: Maybe named after some sort of non-animal product that’s on food pyramid.

Cathy: Broccoli.

Reid: Could be named after a vegetable. Perhaps something else. Today, as you see, we have the Sex Geek Summer Camp T-shirt on which means we’re recording a video about business. And this one might actually not go on YouTube. This one might go into the sex geek school for gift for sex geeks, because this might be a longer conversation than five minutes. So this becomes a training video.

Cathy: And it’s actually…this is a more advanced. It’s a black belt move.

Reid: Black belt move?

Cathy: Yeah. It’s like something you consider when you got the basic supplies.

Reid: Oh, okay.

Cathy: I mean, I didn’t worry about it for a while.

Reid: Let’s do that. What are we talking about? They didn’t even know what we’re talking about. They’re just listening still because they believe us and trust us.

Cathy: No, probably they already left.

Reid: They already left.

Cathy: If you’re still here, why? No

Reid: Ask yourself that.

Cathy: We’re talking about what format, what entity you want to create your business as? Whether you wanted to be a LLC, a sole proprietor and as corp? Or a new entity that we’re quite excited about and LLC with an S corp writer.

Reid: Yeah. Yup.

Cathy: So, we’re actually letting you behind the scenes coz Reid is trying to decide. I’m…

Reid: Cathy’s already decided.

Cathy: Yes. I’m just…

Reid: She’s just waiting patiently for me coz she didn’t get a better deal if she registered both of us at the same time.

Cathy: Yes, yes.

Reid: Because Cathy is shrewd and smart.

Cathy: Yes

Reid: And you should listen to Cathy coz Cathy has good advice.

Cathy: Sometimes

Reid: And we’re gonna prefer this by saying, do not take just our advice. Go talk to somebody who’s a business professional, any tax attorney.

Cathy: We are not attorneys, tax or otherwise.

Reid: And find out…ask around some of your businessy-minded friends or perhaps somebody who’s really good at business and other field, and ask them their opinion. Have a conversation about what we’re gonna talk about today which is do you stay as sole proprietorship? Do you incorporate? Do you become an escort? Do you become an LLC? What do you do with your business?

Cathy: And realize each state has different rules. And where you incorporate and how you incorporate will change. So, we’re gonna give you the advice or our suggestions and information based on what we researched. I’ve worked in Texas, I’ve incorporated in Delaware and Texas, and I’m now in California and I’ve researched…

Reid: Have you ever lived in Delaware?

Cathy: No

Reid: Then why would you incorporate in Delaware, Cathy?

Cathy: For tax purposes.

Reid: Really? Tell us about this.

Cathy: There’s a couple states in Nevada and Delaware especially they’re known as good…tax havens basically. And I purposely set this up. But you have to hire someone to manage this to be receivership there. Some part of your business has to be there even if it’s a P.O Box.

Reid: What’s a receivership?

Cathy: Someone to receive the documents and then any mail that might come to you.

Reid: Like an aunt or an uncle?

Cathy: It can be. They actually have services that will do this for you in those states. Now, for…

Reid: Do not pick an ex.

Cathy: No, because they might be throwing it away. In some states like California, it makes no difference to do that because they don’t care if you earned it in another state. They want you, if you’re living there, you need to pay it.

Reid: Anyone who incorporates in California…no one comes to California to incorporate. California is not a tax haven

Cathy: At all.

Reid: By any standards, and depending on the advice you’d get and mostly depending on where you live. Some states are really hard on you if you live there and then you try to set up your “company” as a receivership in another state. California is one of them.

Cathy: Right. So, one of the reason they set it up originally in Delaware as I done the research, and Delaware had very favorable business laws. Meaning it’s hard to be sued unless you’ve really done something wrong and that the taxes were [inaudible 00:04:26]. However, the hassle doing it was just not worth it so I eventually dissolved my LLC in Delaware and started a new one in Texas.

Reid: And what kind of hack when you say hassles, what do you mean?

Cathy: I had to pay someone to be the receiver of any mail. I defile a special tax, I paid Delaware taxes. So, I was saving a little bit of money in Texas when I [inaudible 00:04:48] pay someone to Delaware. And at least for the love of a corp, you know, the amount of income I had, it just wasn’t worth the extra or having to track another thing and another location to pay someone to do that.

Reid: So, my non-expert advice, because I’m still a sole proprietor and some of my friends who are quite wealthy and self-made wealthy folk. And you know, in other industries, the advice that a lot of people think that I take which is wrong is the idea that if you don’t own anything, there’s really nothing for anybody to sue you over because suing you is usually unless as somebody who’s trying to make an example out of you. And Cathy already has her disagreement face on if you can see this. That people sue you because they can get something from you. So, I don’t own a home, I don’t even think the title of the vehicle that I drive is in my name, I think it’s in my partner’s name. I rent. The only thing that you could really take from me up until the last couple of years would be my intellectual property. And most people wouldn’t know what to do with that so they wouldn’t come after that. If somebody was suing me to come after my intellectual property then it would be somebody who knew what, why are they coming for me for that. And you know, if you don’t have a lot of money in the bank, there’s really nothing for anybody to take from you. So, a lawyer is gonna look at that your situation would be like, I wouldn’t sue him because there’s nothing to get, and the lawyer needs to get paid. So, in some ways, you remaining broke keeps you safe. However, if you actually want to build a thriving business and you know, build well so that you can do more things with it, you need to start considering these conversations. So, I would recommend, wherever you are in your journey, start having these conversations with people who are further down the road than you, so that you get a bunch of different opinions, not one opinion or two opinions from one video, that you then base all of your business decision.

Cathy: Yeah. But we have to give you a snapshot and then some guidelines. Most people start off as a sole proprietor, I did as well. There’s nothing wrong with that. If you or your partner or even some of your business partners are have assets, having the LLC or some kind of corporation gives you a level of wall between you and other people as long as you follow the correct paperwork. If you don’t keep certain things separate and tracks certain things, it doesn’t count. But when it does is…if for example, Reid had an LLC and I sued him, I could sue for corporate assets but I can’t sue him for his retirement fund or his home or…

Reid: Or a car or a home.

Cathy: Yeah, despite your pet rock collection.

Reid: My children. My children. Coz you would come after my children if I hadn’t.

Cathy: Yeah

Reid: [inaudible 00:07:58] it’s my children. [inaudible 00:08:00] that is funny? Not at all. Yeah. So, basically, corporations and LLCs – the limited liability company kind of thing, is it creates a wall where people can’t get at your personal stuff. And for my friends who are quite wealthy – who have been sued, every one of them has said, when they see my company, they come and sue me too personally. So, some of that advice is it doesn’t matter, they’re coming after you personally anyway. If they already hired a lawyer, the lawyer’s gonna come after your company and they’re gonna come after you personally. Which really hearkens back to be amazing, give great customer service…

Cathy: Get insurance

Reid: Be ethical, get insurance and things like that when you run events. Cover your ass so that you can take care of things as you become more and more and more successful. And when God forbid, a mistake actually happens and you actually are the liable one, because we’re all human too.

Cathy: Another reason to do an LLC or a corporation as you start getting more well-known…You’ve had people say I don’t want to write a check, a corporate check out to Reid Mihalko. It seems strange. They want to write it to an LLC or corporation. It kind of looks a little bit more legitimate for taxing and for corporation. And it gives you a certain credibility for many people.

Reid: I have no credibility.

Cathy: I know. That’s why we’re trying to get you a corporation.

Reid: I’m gonna sit here and tell you, you can be successful and stay a sole proprietorship. You’re fine. If this conversation is gonna create so much stress for you that you lock up, it means you’re not ready. And, I want this conversation to start getting you ready to be able to talk about this stuff so that you can start to notice when it is time. If you are starting to generate a lot of revenue, if you’re starting to hire people, even if they’re just…

Cathy: Contact [inaudible 00:10:14]

Reid: Individual contractors and virtual assistants and things like that, you might want to start considering LLCing or we’re gonna recommend which is an LLC…

Cathy: With an S-corprietor

Reid: With an S-corprietor. Because once you get over the hump of taking care of the paper work and we all need to get better at doing paperwork and not feeling paralyzed around taxes and government forms and things like that, you getting over those things is like how you coach other people to get over the weirdness and the anxiety of talking about their wants, needs and desires. If you really want to be a successful business person and then be able to have conversations with other successful business people, who will then bring you into their companies to teach or have you on their stages for their live events, start practicing getting savvy and comfortable talking about this stuff even if you’re still uncomfortable about it, and I still get uncomfortable about it. You’re not gonna be the first person who has ever registered themselves as an LLC with an S-corprietor who is anxious and nervous while doing it. It’s okay and we need to put on our grown up pajamas at some point, and start putting into motion the things that we need to have together so that we can be successful.

Cathy: So, in terms of forming an LLC, it’s actually pretty simple. It takes about 30 minutes, you can do it online. I recommend as a first base lane pass, do it in the state you’re in, California for instance. There’s no advantage to do it anywhere else. It’s just a lot of extra hassle.

Reid: And it’s like 600 or 800 bucks every year. You have to pay California.

Cathy: California requires a minimum tax for an LLC or an S corp. It’s $800. I believe you have to pay right at the time when you file for an LLC. For an S corp, you have like three months to pay.

Reid: I’m just gonna say, if you don’t have enough revenue coming in…

Cathy: To justify that.

Reid: To do that, like, to write the cheque, then you’re probably not ready. And you shouldn’t worry about it but still have these conversations so you get comfortable with it.

Cathy: In terms of the paperwork, you can actually get forms online. All of these is [inaudible 00:12:31] you fill out a sheet, indicating where you are and like, that you’re actually focusing on businesses, not a hobby that you’re just using for tax right off basically. It doesn’t take a lot of time. You do need to have those and gather together if they’re [inaudible 00:12:45] if you ever sued because that’s one of the parts of the wall if you don’t have those. They’re like, you’re just using this as a way to try to hide from people.

Reid: Other reasons you might want to start considering LLC and what we’re gonna advise which is LLC with a S-corprietor, is you can then start paying yourself a salary in ways where you don’t get taxed on all the income that comes in in a given year, as you do as a sole proprietor. So, for me as a sole proprietor, if I make you know, $200,000 this year, then…

Cathy: Net

Reid: Net. Then, I’m getting, like, that all gets recorded unless I’m, you know, dealing in a lot of cash and trying to hide that which becomes problematic.

Cathy: It’s illegal.

Reid: When and if you get audited. I’m not gonna say anything more about that. What I’m gonna say is, going into a LLC with an S corprietor, you can then pay income tax on what you get paid as an income. And then, bring in tax professionals to advise you on how to what to do with the other revenue that’s coming in, in ways that are smart for you tax wise.

Cathy: And the retirement or putting money away for retirement starts getting sweet when you have the S corprietor. Even with the LLC, there’s certain tax…retirement systems that become available at higher amounts than if you’re a sole proprietor. But for the S corprietor, you can put up a way up to a quarter million dollars a year in a 401(k), which may not seem, like, if you’re struggling right now or just getting started, that maybe like, what? Why are you telling me that? But, say you have this big move like, one year, like, one month, all of a sudden you break through.

Reid: You have a launch because you watched SG3 or you came to camp. The launch all of the sudden, you know, makes you $300,000. After you send a thank you cheque to me and Cathy for helping you be so prosperous with the extra money.

Cathy: So, you can…

Reid: I think that was fun. You didn’t laugh at all.

Cathy: Well, you do…

Reid: We have to keep this light for them because…

Cathy: I know. It’s scary stuff.

Reid: Scary stuff

Cathy: And I want to just congratulate you for being this far end coz it is…the first time I looked at it, I was like, dear, the headlight and I would like, look at it a little bit and come back and keep circling. But, you would normally pay tax on say that $300,000 net.

Reid: You would. You would have to pay taxes on all $300,000. And, if you have a 401(k), as a sole proprietor, you can only put up to $450,000 in?

Cathy: I know as a corporate employee, I can put in $18,000 next year.

Reid: But that’s, but that’s because you’re a corporate employee.

Cathy: Yeah. So, I think it’s lower.

Reid: But for those of us who don’t…

Cathy: I don’t know

Reid: So, if you’re a sex educator and you have another corporate job, then you could take $18,000 – in Cathy’s situation, and put in, you know, $18,000 into your 401(k). But, like, if you’re me, I don’t work for corporation, I make a few hundred dollars, I can only…

Cathy: It’s a very a small amount.

Reid: Yeah. It’s like four to five hundred dollars or something like that, right? So, I…

Cathy: It’s five thousand for a higher [inaudible 00:16:02]

Reid: I can only put that much away and have to be tax free. Whereas, if I’m an S-corp or corporation, then all of the sudden I could take the majority of that money, and throw it into retirement. I can’t touch it without major penalties until I’m much older.

Cathy: But it is tax-free.

Reid: But you have one huge win and then, you can leapfrog forward in your retirement planning, and avoid in an ethical way, paying taxes on those things. So, the way that I think of it and you can feel free to disagree with me is, until you have revenue coming in or you’re starting to move in to that place where you have more money than your cost of living, after you pay your expenses, right? So, I’ve run camp. Camp is an expensive event to run. Camp brings in this money but I write a cheque to get back out to pay for camp. When you start becoming profitable and you have money left over, this is really and this is happening consistently, you really need to start thinking about this because you paying taxes on money – extra money that you just have on savings that you could put into retirement, is a bad business move.

Cathy: Well, and then the tax free say at $300,000, you’re paying over, you know, probably 35% taxes. So, you’re basically, a hundred thousand is just going to the [inaudible 00:17:34].

Reid: Uncle Sam will love you.

Cathy: Yes. And then you’re putting another [inaudible 00:17:38] income tax probably. So, being able to put, you know, quarter a million dollars in your retirement fund per year is huge. It could really set you up to become comfortable especially if your income’s up and down. So…

Reid: And these are just big reductive ideas coz we’re talking about like, three hundred thousand where for most sex educators is unfathomable. Retirement, you know, retirement 401(k) situation for me was unfathomable.

Cathy: A few years ago.

Reid: A few years ago. So, it’s okay to not be good at this kind of thinking…

Cathy: We just want to introduce the concepts because if you keep doing the good work you’re doing, you can get there.

Reid: You’re building to this and I want you to be thinking ahead so that you know when to pull the trigger on LLCing and S-corping. If all these things are not happening and you still have an LLC, that’s okay too. Some people I would recommend LLC very soon because your reptile brain will feel better with it. You’re one of those kinds of people.

Cathy: I started an LLC as soon as I started doing coaching because there was a chance I could get sued. And I have a house in retirement, a car… all that. It also made some of other people who are working business wise, feel more comfortable. They were clear that this is my business, that’s their business, we’re collaborating, and it give them a comfort level.

Reid: Whereas, if you have two people who are sole proprietors and you’re collaborating a lot on a project, legally. Now you are both treated as kind of the same…it just, it make things…

Cathy: Cleaner

Reid: Cleaner and easier legally wise. And so, these are the things that, you know, one, for you, figure out what makes you feel comfortable and empowered. But two, also understand that when you’re collaborating with people, figure out what they need as well. And at some point as you grow, you’ll gonna need to do this anyway.

Cathy: Yeah

Reid: If you’re making a lot of money and you’re like, “No, I’m gonna stay as sole proprietor”, you’re not just taking advantage of how the rest of the world setup  in ways that you can leverage things, you know, in retirement compound interest and things like that, and not being taxed on things that you put away for retirement. Those are just really useful things if your belief system around wealth is congruent with the existing systems. If you’re complete anarchist, then you can probably stop watching this video right now. It’s not of use to you.

Cathy: Yes. Now, you could form an S-corp directly, but those are very cumbersome and have a ton of people [inaudible 00:20:27], so I don’t recommend that. I looked into it, I mean, it’s very…it can be prestigious to some people and there’s a lot you can do. But for most of us, there’s just absolute no reason to do it.

Reid: Keep it simple until you’re either making so much money or you’re positioning your company to, you know, you start putting it into a position where you want to go public or something like that. And, you know, if you’re that kind of person, congratulations that you got there and you should be talking to professionals, and seeking a lot of different opinions on that.

Cathy: Yeah. And one of the…I have a financial advisor who recommended the LLC with an S-corp. Which if you file an LLC, the S-corprietor comes to the government through IRS. You basically forming LLC through your state and then you tell the IRS that you want to be taxed as an S-corp, as an S-corpietor. And there’s a specific form you fill out and then you’re ready to go. And when you do your taxes, it’s really not that much different coz it is still a pass through entity in a sense that you are…it’s your income. You’re [inaudible 00:21:39] under your social security number or EIN which is tracked to your security number.

Reid: So the money that your company makes passes, passes through it to you. This is not super complicated once you start to understand how it works.

Cathy: Yeah. A c-corp or regular corporation like, I think IBM for example. It’s a corporation so when they earn in that income, they pay tax on it. And then if Reid was an employee, even if he was one of the owners of it, he’s considered an employee of the corporation. He would be taxed as well when it was paid to him as well. So, it’s a double taxation.

Reid: And you would [inaudible 00:22:14] for now.

Cathy: But unless you do a c-corp, you’re not gonna worry about that.

Reid: Yeah. So basically, you’re looking to either do an LLC or an LLC with an S-corprietor, we’re gonna advocate that you consider and ask about S-corprietors because it gives you some advantages tax wise and payment wise that an LLC can’t give you. Whereas, an LLC gives you legal protection because you have a business entity separated from your personal entity. But, all the money that the LLC makes, basically still comes to you, like, you get taxed on all of it. The S-corp is what allows you to have some other choices for what to do with the money that you don’t pay yourself. And it’s not like a ghost way. You can’t hide it but you just have more place, more things that you can do that depending on your situation, make more sense financially and business wise.

Cathy: And as you start getting deeper into this, if you decide to go forward, I’ve called when I moved out here, I called a couple different attorneys that would recommended highly any out for small business owners, and I talked to them. They usually give you a 15-20 minute consultation for free. If you call at five, you might get two or three to do that. They answer a ton of questions just in the hopes that I would become their client. There’s a lot of lawyers out there right now.

Reid: There is also your Better Business Bureau and your Small Business Associations in your town and in your cities. Those organizations, you know, exist for these purposes.

Cathy: Yeah

Reid: And, you know, if you’re any good at what you do and we hope you are by now, you networking your small business organizations is a way for people to get to know your work and especially if you coach and see people, like you’re a sex therapist or a relationship therapist, something like that. This is a way for you to expose, market and network what you’re doing by going in and asking these other people for their areas of expertise. So don’t underestimate the power of working your small business associations in your town, if you do a lot of in person, you know, coaching kind of services or you teach workshops in your town.

Cathy: Yeah. If you decide to go ahead after talking to people, there’s a bunch of online places. Most lawyers will actually charge you for more than you need to. You can get, you can compare different prices. I think I use my company business or something. There’s online places where you can just file, write online. And I think I paid $270 to get my LLC created in Dallas, in Texas. So, you can consider those. You don’t have to have a lawyer do that necessarily. It’s not always that, it’s not often that complicated. So, well, we hope this helps.

Reid: Yeah. Leave some comments. Let us know, you know, if this was useful, what you liked about it. And you know, you can always reach out to us. But again, the big pieces, we’re not tax attorneys.

Cathy: Or CPAs

Reid: Or CPAs. Go practice talking to other people who do this for a living and having conversations with other peers and people outside your industry. Just to practice getting more comfortable and so you can learn more about this stuff. For sex geeks, talking about business in legal, that’s our version of the stuff that we get freaked out about and clam up about. Whereas, you know, you talking about chlamydia, you’re like, you’ll do that and thanks for giving [inaudible 00:25:47]

Cathy: Where some people with rather than worse than talk about that.

Reid: Yeah. So, you’re doing awesome, please continue. Ciao!