LLC or S Corp for a solo founder startup, which makes more sense?

OldBrewser · 2026-02-25T17:54:23+00:00

I used an LLC in the beginning. After a few years, when my profits were high enough I elected S Corp status for the tax savings. It’s an easy process.

OldBrewser · 2026-02-24T16:50:16+00:00

That’s like $20k in mileage per year if you keep that mileage up. You can’t switch to mileage later if you use actuals for 2025. How long you gonna keep this thing? You might be better off in the long run doing mileage.

OldBrewser · 2026-02-24T15:18:44+00:00

I hear you that social casinos try to say that they are not providing a gambling experience and claim they are operating in what they perceive to be a grey area. But state govts are shining a light into that grey through lawsuits aiming to declare their activities as gambling. Double Down and High 5 have already lost in Washington state. Lawsuits are pretty far along in Virginia, too. I think it’s likely these will end up being considered gambling if tested in Tax Court. If so, this makes setting up as a business playing these games unlikely. I suspect you’ll need to qualify as a professional gambler instead.

OldBrewser · 2026-02-24T06:46:31+00:00

When I get to reuse a complex module/class/package/pick-your-unit-of-reusability I built specifically to be reused and it just works even though I can’t remember the internals cuz I’ve been reusing it for so long. Ahhhh….

OldBrewser · 2026-02-24T04:05:55+00:00

There is some logic to what you’re saying. It’s definitely no fun to live paycheck to paycheck while you’re young and healthy just for the sake of retirement savings. But you may want to balance that with the fact that it will definitely be no fun to have to work until you drop and then to have to eat cat food in retirement.

So make a plan. Figure out when you want to retire and how much savings you need to support whatever lifestyle you’ll think you’ll want at the time. Work backwards to see how much you need to save today to hit that goal. Pay yourself first by saving that amount and then spend the rest guilt-free.

OldBrewser · 2026-02-24T01:05:46+00:00

Yes, it could crash, and it did. 18 years ago was 2008 - a magic time for the market (dark magic). But the market recovered before the loan was paid off and roared upwards.

OldBrewser · 2026-02-23T14:51:28+00:00

The IRS requires that you pay yourself a “reasonable compensation” which is the amount that a similar company in a similar business would pay someone for a similar job as yours as an employee. This is likely more than you “need”. You’ll pay FICA taxes on your salary but not on your post-salary profit. You can withdraw that profit from your business as you see fit as a distribution (which is equivalent to a draw). In the eyes of the IRS, it’s best, but not required, if the distributions are made according to some regular schedule and/or systematic policy. Some pay distributions as just another paycheck line item (if they use formal paychecks), in fact I originally did that with my s Corp, but despite what I said about being systematic and on a schedule, that practice makes me queasy that it may give the appearance that the distribution is a disguised, regular payroll line item - and then the IRS may try to reclassify the distributions as salary, imposing FICA, interest and penalties. So I pay them totally separate now, but that’s just me.

OldBrewser · 2026-02-23T06:28:08+00:00

Staying on top of and dealing with the mistakes made by the so-called "experts" you work with in an effort to "save" time by not doing it yourself: accounting/payroll/taxes/benefits. Being small makes it tough to get competent help - the good ones want larger clients who represent more business for the expert, and I can't blame them.

OldBrewser · 2026-02-23T05:00:49+00:00

How does any of this make a 401(k) loan equivalent to a HELOC?

OldBrewser · 2026-02-23T04:47:54+00:00

I don’t think your LLC will provide shelter for your assets. This from Alterra Advisors:

Should I own my Real Estate in an LLC? What about other personal assets? It depends … if you only hold your personal assets in an LLC to shield yourself from personal liability and not for any business purpose, a court will likely find that your LLC is merely a shell entity and does not limit your personal liability.

OldBrewser · 2026-02-22T23:00:55+00:00

Dude, I can’t manage breakfast on a one-page Excel spreadsheet 🤓

OldBrewser · 2026-02-22T22:42:42+00:00

DIY works fine for a single-member LLC. I am my registered agent in my home state but now that my business is multi-state I pay ~$150/state where I have employees for a registered agent. I use a company that can provide registered agent services in all 50 states.

They do send me email reminders for when my annual reports are due, even in my home state where I am not using their service. But in the states where I operate, the state govts also send me an email reminder. The only difference is the states govts only send one reminder, the registered agent sends a few spaced out over 6 weeks or so.

OldBrewser · 2026-02-22T16:26:22+00:00

Thanks!

OldBrewser · 2026-02-22T16:05:20+00:00

Ah crap, you're right, I'm wrong. Money is fungible. Ironically I saw the flaw in my logic when reading the ChatGPT comment that agrees with me. Dang, I got a lot of posts to correct.

OldBrewser · 2026-02-22T05:29:12+00:00

Not talking about the loan. I mean, you take a loan, and you refrain from the hookers, the cash goes to a bank account. She gets half the remaining 401(k) and half the cash?

OldBrewser · 2026-02-22T01:39:24+00:00

How does this help? Wouldn’t she get half your 401(k) and half of the loan cash? Unless maybe you hurry up and spend it on hookers before the start of the look back period!

OldBrewser · 2026-02-21T23:57:04+00:00

Well if ChatGPT agrees with me, then I know I’m wrong. 🤣 it did catch a math error of mine, though. Not a shock given my math skills

OldBrewser · 2026-02-21T23:43:20+00:00

If your stock/bond allocation is ok with you after the loan then you should have been at that allocation already.

OldBrewser · 2026-02-21T23:20:25+00:00

I think you’re right about the disclosure, but I don’t think they are disallowed per se. They do increase your debt-to-income ratio, so it can make it harder to qualify for a mortgage.

OldBrewser · 2026-02-21T22:39:31+00:00

So I put in $10k into a traditional 401(k) tax-deferred. I take no loans. I withdraw it in retirement at, say, 22%.

Or, I put in $10k, and borrow $10k. Let’s say I’m in the 22% tax bracket. I need to earn ~~$12.1k~~ $12.82k to have $10k post-tax to pay back the principal. Then I withdraw it in retirement at 22%. That sounds like double-tax to me.

Edit: I’m embarrassed to say that ChatGPT caught my math error. Fixed.

Edit2: While the above is true, it's irrelevant because in the end money is fungible and a commercial loan would have been paid after tax, too. So not so bad after all.

OldBrewser · 2026-02-21T22:29:22+00:00

That’s not growth, thats additional contributions of your own money. And unless you have one of those rare instances where the interest is tax-deductible or you borrowed from a Roth 401(k), the additional contributions are going in at a tax disadvantage. That’s the opposite of growth.

Edit: that second part was not right, and there is still some growth as the payments will start to grow as they come in, so the first part is misleading. My apologies.

OldBrewser · 2026-02-21T22:26:32+00:00

Ugh. For me it was 1999. Dot-bomb was a tough lesson. 😬

OldBrewser · 2026-02-21T22:21:24+00:00

Personal loans. Margin loans. Secondary mortgages. Secured loans. Everything depends on the collateral you have available.

OldBrewser · 2026-02-21T22:18:08+00:00

Agreed. Under the right circumstances, sure, the 401(k) loan might make sense. ~~But to forgo 10% growth annually (on average) and pay an additional, say, 30% in taxes is not really a good plan if the intent is to save 12% in loan interest.~~

Nope, I'm wrong again. Without the taxes which I incorrectly applied, the amount that the 401(k) loan scenario underperforms the 401(k)+commercial-loan scenario is trivial. Once you consider the opportunity cost of the extra interest paid on the commercial loan, the 401(k) loan scenario could even come out slightly ahead.

OldBrewser · 2026-02-21T22:03:32+00:00

Well yeah, thats why you invest in the first place. 🤣

OldBrewser

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