Podcast

Episode 154

Apr 17, 2018

Business entity considerations come up a lot in our community of massage therapists and many are wondering of they should operate the business as an LLC rather than sole proprietorship. We dig deep into this question with Jeff Heinzmann, a seasoned business attorney. Jeff shares insights on that advantages and protections offered by an LLC, tax treatments, financial considerations and how to structure owner payments. It’s an absolute gold mine of business advice for massage therapists.

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EPISODE 154

Business entity considerations come up a lot in our community of massage therapists and many are wondering of they should operate the business as an LLC rather than sole proprietorship. We dig deep into this question with Jeff Heinzmann, a seasoned business attorney. Jeff shares insights on that advantages and protections offered by an LLC, tax treatments, financial considerations and how to structure owner payments. It’s an absolute gold mine of business advice for massage therapists.

Sponsored by: 


Transcript:

Sponsor message This episode is sponsored by Pure Pro massage products. For over 24 years, Pure Pro has distinguished itself by adhering to the values of quality, purity, efficacy, and education. What do runners, martial artists, people with fibromyalgia, and you all have in common? They can all benefit from the powerful, activated arnica complex and all the natural essential oils in Pure Pro’s Arnica Relief Massage Lotion. Arnica is a natural anti-inflammatory herbal extract that aids tissue repair to provide pain relief, so you can ease aches and pains and even muscle spasms during and well after the massage. All Pure Pro products are vegan, cruelty free, and nut free, making your job as a safe, mindful practitioner that much easier. You can trust Pure Pro because it’s made by massage therapists for massage therapists. For $10 off your next order, go to massagebusinessblueprint.com/purepro and use the one-time discount code BLUEPRINT at checkout. That’s massagebusinessblueprint.com/purepro.

Michael Reynolds Hey, everyone. Welcome to the Massage Business Blueprint podcast, where we discuss the business side of massage therapy. I’m Michael Reynolds.

Allissa Haines And I am Allissa Haines.

MR And we are your hosts today. Glad you’ve joined us. I am very, very excited because, first of all, we get to skip the banter. No talk about food or weather today because I am so excited about our guest today because we have an honest to goodness attorney on our podcast today. We’ve been trying to get an attorney on our podcast for a while because we have tons of questions about this topic. And I’m so happy to invite Jeff Heinzmann, attorney, on our podcast today. Welcome, Jeff.

Jeff Heinzmann Thanks for having me, Michael.

MR Good to have you. I know Jeff from networking. We are in networking group today, and Jeff actually worked on my family’s will, as well, so I’m a client of Jeff as well. Jeff is the owner of Heinzmann Law Office in Fishers, Indiana. Fun fact: Fishers is actually consistently voted one of the top most livable places in the US. Is that right, Jeff?

JH Yeah, it is.

MR It’s pretty well known for that fun fact. It’s just north of Indianapolis. Jeff has — what I love about Jeff is he’s not really your typical attorney. He has some kind of fun things about his career and his general business practices that I really love. One is Jeff actually loves to network and get out and promote himself in ways that you typically don’t see from attorneys, and also he — one thing I noticed in his bio, he’s regularly recognized as one of the top 40 lawyers to follow on Twitter. So how did that — where did that come about, Jeff? Who’s making that list and where’d it come from from?

JH You know, it just started happening a couple years ago when I started my solo practice at [indiscernible]. And all of a sudden, I started getting these notifications, and I never quite understood the methodology, but it was something I was proud to be a part of for a while. I think as my practice grew and I started focusing on some other things, I think I fell off of that list. But it was still an interesting tidbit. I think it had something to do with how often you were retweeted or followed as an attorney.

MR Okay. Very cool. Well it’s not often you see attorneys on social media very active. So that’s a cool fun fact as well. Jeff, do me a favor. Before we jump in, let’s spend about 1-2 minutes on your background. Because I know your background and it’s very interesting the journey you went through to arrive at your solo practice you launched a few years ago. But you’ve had a lot of experience in both private and public sector. So what’s the time line of your career?

JH Sure. Well, I’ve been an attorney for 25 years now. And when I first got out of law school, I was with a couple of small- to mid-size firms in Indianapolis for a little over 8 years where I was a litigator. I tried cases; I was in court with jury and bench trials doing motion practice, going in court, standing in front of judges, making arguments mostly on behalf of small businesses. We did represent individuals as well, but my litigation practice tended to focus on the enforcement of contracts in litigation.

After I spent 8 years there, I was recruited to go in to state government where I served as deputy state auditor and council in the state auditor’s office, which was a very interesting 5-plus years where I got involved in the legislative process and got involved with the fiscal processes of state government and local government.

After that stint, I went over under Governor Daniels to the Indiana Economic Development Corporation, where I served as an executive running the statewide small business development program. In that place, I was able to work with the federal government, which provided us a grant for the program with various chambers and universities across the state as well as with entrepreneurs starting their businesses or CEOs of businesses that had been in existence for a long time. Worked with various foundations from across the country, too, on entrepreneurship issues.

And that was a fascinating 5 years after which I went — I spent 3 years as in-house council for a small IT staffing and consulting firm. That firm didn’t grow to justify a full-time in-house council, so I shifted to contract from employee, and a little over 3 years ago, I launched Heinzmann Law Office right here in Fishers. It’s a solo practice, and while I’ve kept my practice very general, I do bill myself as someone who represents business and small businesses as outsourced in-house council because most small business can’t afford that, can’t afford an in-house council so I try and provide them with the legal services that every business needs.

MR Yeah, thank you. That’s true. One thing you mention a lot when you’re in the networking groups and stuff, you’re like hey, I do this, but I do other stuff too. It’s kind of a fun — you kind of joke about it, but you do a lot of things. And it’s really kind of cool because you can help a lot of different people with lots of different intricate issues because of your background. I know that you have a real specialty in small business, but obviously you have a wide background that helps a lot of different areas. We’re excited to have you on the show.

Let’s go ahead and jump in. This question or this general area of questions comes up on a regular basis among our community of massage therapists. And that is around business entities and what type of business entity is best for you as either a solo massage therapist or massage therapist with independent contractors or employees, etc. So first of all, the title of our show is, obviously, when to become an LLC, because that’s what a lot of the questions revolve around. But let’s start with what is an LLC?

JH Sure, well, an LLC stands for limited liability company or limited liability corporation depending on the jurisdiction you’re in. Really the name gives it away: limited liability. Whenever someone goes out and does something, whether it’s driving their car or having people into their home or having some sort of a business activity, if something goes wrong, they can be held responsible for something that they do that’s wrong. The easy case, you run the stop sign, you hit the other car. That’s a personal situation, generally, and you can be liable. Now, most people have their auto insurance and that takes care of it, but if the insurance isn’t enough, then it’s going to be the individual who’s held responsible for that. And when you get into businesses, the question becomes would you, as an individual, like to be personally responsible for the actions of your business when it comes to legal liability. For most people, the answer should be a resounding “No, I prefer not to have that happen.” Which is why you form some sort of an entity other than just hanging out your shingle as a sole proprietor. The law provides the opportunity to create this fictitious legal person in the entity where that’s where the liability lies and if you observe the formalities of the entity that you form, then you are protecting yourself, your house, your personal assets from potential liability.

MR So based on your explanation, I think I probably know the answer. But the question that I think is on a lot of people’s mind’s is when is the right time as a massage therapist to become an LLC?

JH Well, and — I hope that you got that — I would say from day one. You can be a sole member limited liability company, and when you do that and when you observe the formalities of it and keep your assets separate from those of the business and observe all the formalities, you are protecting yourself; you are protecting your house; you are protecting your car, any other assets you have. You’re also protecting your ability, if something were to happen before you buy a house, to be able to go and get that mortgage when you do buy the house because you don’t want a judgement on your record as an individual when you’re moving forward to do that.

MR In that case — and Allissa correct me if I’m wrong, but I think a lot of massage therapists start out and stay as sole proprietors. Is that pretty accurate, Allissa?

AH I think it’s probably a 50/50 — I think we all probably start out that way. It’s a 50/50 split, I think, in the first 5 years or so of one’s career if they hit the LLC situation or not.

JH Some of those things — I mean, are most of the massage therapists that we’re talking about here, do they operate out of their homes or are they operating out of an office space where they’re renting?

AH I think we’re probably 75% office space people. I know we’ve got — there’s plenty of massage therapists working out of their houses. But I think our contingent is mainly out of offices or renting space inside other businesses and such, yeah.

JH Because there’s another good example of protecting yourself potentially from liability. Now some landlords might make an LLC sign a personal guarantee for the lease as well, but others won’t. In which case, let’s say you have a massage therapy studio that doesn’t do well and all of a sudden can’t make its payments on its lease, well, if you have an LLC that is leasing that property, then the LLC is where they can go to get — for their recourse to try and get the remaining rent under that lease. But if you are a sole proprietorship, then for the remainder of that term of that lease, you’re going to be personally on the hook for that rent whether the business can pay for it or not.

MR That’s a good example. What are some other examples of ways that being a sole proprietor — I guess what’s wrong with being a sole proprietor in the sense of what are some of the things that could go wrong? Let’s say you spend the first 5 years of your practice as a sole proprietor. That’s one great example, but are there other things that could go wrong?

JH Well, sure there are. And, again, it’s mostly financial. It’s mostly the lease; it’s mostly paying for other things. But if you have employees, it’s also who the employees can come after if an employee feels that you discriminated against them and brings some sort of an action under employment law doctrines for that. If you’re not an LLC, then they’re going to be suing you personally for that. And, again, if you own your house by yourself and not jointly with your spouse, your house is one of the assets that they could go after. All of these things become situations where anything that can go wrong within the business, anything that can lead to you having some sort of liability, is a reason not to be a sole proprietorship.

MR So I would assume that would apply to client complaints as well.

JH Yeah, it could because the client is a client of the business. And that’s a perfect example because if you do something individually that’s illegal, not within the scope of your employment or not within the scope of your business, you could potentially be personally liable for something. But if a client is suing the business for something that happened to them in the scope of the business, and as a sole proprietorship, you as the sole proprietor are the business personally and professionally. But if you are an LLC, and you’ve observed the formalities, then the universe of assets that the client can go after is the universe of assets of the LLC and not what you hold personally.

MR All right. Makes sense. I was going to jump to a quick halftime announcement real quick, but, Allissa, is there anything you wanted to ask about those points before we move into that?

AH No, not yet. I’m good.

MR Everything make sense? Cool. So we’re going to take a quick halftime break and we are going to actually make ourselves the sponsor. We have an announcement coming up that we send out via email and on our Facebook page as well.

As you may have seen, our premium membership has been $9 a month for about 3 years now, and we’re coming up on our 3-year anniversary. So happy birthday to us. We’re turning 3 in May. On May 1, we’re going to be increasing the price of premium membership to $17, up from $9. You’ve probably seen the email; there’s a whole explanation of the why. But we’re really excited to be growing and making some more investments, so be on the lookout for that. If you’re listening to this before May 1, be sure you — if you’re kind of on the fence about joining as a premium member, be sure you consider that and get signed up because we are grandfathering all premium members in at the $9/month rate before May 1. So if you’re a current member or your join before May 1, your rate will stay $9/month indefinitely as long as you maintain active membership. So check that out.

Just wanted to make you aware of that. Anything you would add to that, Allissa?

AH I am totally enchanted by the notion that I am just now realizing that the Massage Business Blueprint is the same age as your kid.

MR [laughs]

AH I totally never realized —

MR It’s true. It’s true.

AH I didn’t realize Massage Business Blueprint and Eli are both going to be 3 in May — or April or whenever his birthday is. I can’t believe I didn’t put that together. Can you believe we launched this when you had a newborn? Okay —

MR I know. I think it was like 3 weeks after Eli was born, I was like “Hey, let’s start a business.”

AH — this is the entirety of my participation in this conversation. I’m sorry, that’s where I’m at.

MR It’s much more interesting.

AH But, yeah, no, being a premium member is super cool. We have really — I am really proud of something we started doing in the past couple of months for our premium members, which is — we used to give a blog post a month to everyone. And we have actually hired a professional writer now to write our blog posts that massage therapists can use on their own website. We’ve got some great posts for the past couple of months. Each month we have a new, brilliant, professionally written post that people can use on their own massage websites and in their own marketing. I got to tell you, the one coming out for next month is this amazing, brilliantly written article about essential oil use in your massage practice. And essentially teaching your clients what they should ask for and what they should know if they want to incorporate essential oils into their massage treatment. It’s a brilliantly written post and I think that’s one of the coolest benefits we’re offering right now and there’s a ton of other stuff that you can totally check out if you go to the website. But that’s all I have to say, Michael, thank you.

MR Awesome. Yeah, it’s really good. Those articles are amazing. So let’s jump to — let’s say you’re listening — we’ve got some massage therapists listening. Let’s say they’re sole proprietors. Let’s say they’re convinced now that it makes sense to consider an LLC. How do you become an LLC?

JH Well, it can be very simple, especially if you are a sole proprietor and you’re just — it’s just you. If it’s just you, you can probably — and I hate to say this as an attorney, but you can probably form it yourself and just have your articles of organization filed with your secretary of state and take care of it in that way.

Where it gets more complicated — and there are other things you need to do besides filing that. You typically would want to get yourself an employer identification number from the IRS. Again, you can do that on the IRS website for free. Although, there are plenty of — make sure you’re on the IRS website when you’re doing that because there are plenty of companies that will charge you $175 to get an EIN, which you can do for free on the IRS website. You also want to pick a name for your LLC. It can be as simple as Michael Reynolds, LLC, or you can use initials or you can come up with a snappy massage therapist name for your business, however you want to do that. But you’ll need to check with your secretary of state’s office to make sure that name is available. Again, that’s usually something you can do online.

Where it gets a little more complicated is when it’s not just you. Once it’s not just you, you really want to have what’s called an operating agreement. And some states — Indiana does not require this and that’s where I practice. Some states may require an operating agreement from the get-go with the formation of an LLC even if it’s a sole member LLC. But it becomes really much more important when there’s more than one. Again, I tell my clients this all the time, when you’re doing something — let’s say it’s two people forming the LLC. Well, everybody likes to say yes, we’re starting this business. We’re so happy. We really see eye to eye on all this, and they make everything 50/50. And what happens then is someday there’s an impasse. Someday, there’s a falling out between the two members and you’ve got that impasse, that deadlock, and you’re in a situation where unless the operating agreement provides with how do you break that tie, you’re dealing with basically winding up the business and going your separate ways that way. Versus I was the founder, so I’m going to be 51/49 and I’m going to be able to break those ties and makes those decisions for how can you bring new people in, does somebody have a veto over that if you want to bring in more members. If you all of a sudden go to a massage therapy studio that has six or seven options for massage therapists to be serving people and are those people going to be members? Are there going to be different classes of membership where there’s a couple of people who have super membership versus a more common membership.

And the beauty of the LLC, in my view, is the flexibility is very key. You can really draw up these agreements almost any way you like and come up with how do we resolve these conflicts that don’t exist now and that we hope never exist. But you want to plan for those up front because you can negotiate that with people on the front end much better than when you’re fighting with each other.

MR And when you say “member”, just to clarify, that means owner of the business, in this sense?

JH Correct. Correct, yes. In an LLC, what you would commonly think of as shareholders like in a corporation setting or as partners in a partnership, they’re called members. There’s two ways to also organize your LLC. You can have it be a LLC that is member managed, meaning that the members are the ones who control everything; or it can be manager managed, which means that the LLC can appoint the manager, often it is a member who is appointed as the manager, but it doesn’t have to be.

For instance, you get that thriving massage therapy studio that really has so much administratively and so many employees and so much going on that they need a professional coming in and managing the business. You can make a manager, who’s not necessarily an owner, but they have authority to do things that bind the business, and are then controlled by the members, and the members get to choose whether those people get to stay on as managers. But that’s, again, it gets — you can make these things more complicated as they go on and the need for that complication — let’s not call it “complication”. Let’s call it “sophistication” arises, then you can do that.

But an LLC can be anything from a sole proprietorship to a company that has different classes and levels of membership or ownership and different authorities that go with that so that it’s scalable in a way that — the only other thing that’s scalable, I would say, is the corporate entity. But corporations come with a little more formality that’s required, a little more administrative burden, a little more that needs to be done in order to accomplish things. But a limited liability company really came into existence in common use probably about 30 years ago, and it has really become, especially for small businesses, the preferred vehicle because of its simplicity and flexibility.

MR So it sounds like it makes it pretty easy to invite additional owners into the business when you see fit, right? It makes it pretty easy to do that?

JH It can be. But, again, this is when you get into drafting your operating agreement. If you have three members in your operating agreement, but two of you are really the founding members and you two want to be the ones who can decide when are we going to bring on a new member, you want to be careful when you draft your operating agreement because a lot of form operating agreements will require unanimity for the addition of new members. And if you’ve got that third person who you’re happy to have there, but maybe you don’t want them to be the ones to say “no, I don’t want to bring this person in,” then you want to negotiate that up front when you bring someone on board. Look, we’re the ones who are going to decide — we’ll still consult you; we’ll still have input from you — it’s much easier to negotiate that up front, when, again, everybody’s happy at the beginning of these relationships.

MR I know you, Jeff, and you’re very — you’re too non-salesy and polite to say this, but I’m going to go ahead and assume and say it here that it sounds like if you are anything more complex than a solo practitioner, it makes sense to probably hire an attorney to do this. Would that be fair to say?

JH That’s, in my view, absolutely the case. You can go online and go to some of these things, but I will tell you if you look at the fine print for some of the services out there that will help you make your LLC and give you an operating agreement, one, the fine print will often say we’re not lawyers; we’re not serving as lawyers for you; we’re providing you with this template and we’re not guaranteeing anything. So you don’t have the protection of having an actual — while there may have been actual lawyers that drafted those agreements, they weren’t your lawyer and they didn’t do this for you; they’re giving you something off the shelf. And as every business can be unique and every relationship between business partners can be unique, you want to have the ability and the know-how to make the organization the organization you want it to be and not just something that came off the shelf from somebody else who doesn’t know you at all.

MR Well, I’m screwed. Because I’ve been using those online services for businesses for a while now. I should probably stop doing that. [laughs]

JH Well, again, it depends — Michael, I know you, and you’re a pretty sophisticated entrepreneur who knows his way around, and, I think, in the businesses you form, know what you want. I would think that — and maybe you and I need to sit down and have a talk about this offline, but I would think that you can get some of the things into the operating agreement that you want in terms of how your relationships are going to proceed as things change.

MR [indiscernible] I appreciate that.

JH And, look, here’s the other thing. As I said at the beginning, a limited liability company or corporation exists because of those two LLs — limited liability. I’ve mentioned this in passing, but you want to, when you do this, make sure you observe the formalities of the entity. That means filing reports as often — in Indiana it’s an every-other-year report that needs to be filed. That means having a bank account for the business. Using the bank account only for the business. I have – -Heinzmann Law Office is an LLC. So I have a business account and I have a card, and I pay myself from my business. And if I need to buy something personally, and it’s time for me to be paying myself from the business, I don’t buy my personal item with the company credit card or with a company check. I write a check to myself, I put it in my bank, and I use my own money then for buying my personal items, and I do not comingle my business assets with my personal assets. That is one of the ways that you can lose the protections, potentially, of the corporate entity that you’ve chosen: through comingling, through fraud, through doing things that do not respect and observe the formalities. It’s a difficult thing to do, but it’s not impossible to what’s called “pierce the corporate veil” and go after someone personally. But if you observe and make that effort to observe the corporate formalities, you will be taking significant steps to make sure that you are maintaining your liability protection.

AH So I’ve got a question —

JH Sure.

AH it’s probably a two- or three-part question as I’m going to state it because I’m not going to make anything easy here. [laughs] I found — and even personally, for me, the main reason why people have not done the LLC is because of the expenses of it. So I know in Indiana, it’s pretty cheap. It’s like 50 bucks or something. I’m in Massachusetts; it’s $500 a year, which is a real — that’s a big obstacle for massage therapists, especially in their first several years of practice where we’re talking about people who, maybe, gross $50k and net $20-25 of that their first couple of years as business owners. So that cost is a real obstacle. I have a two-parter here. What are the — outside of the state-to-state fees, which are going to be different, which I know that you can’t speak to specifically, but outside of just the state fees, what other kinds of expenses are we looking at to maintain an LLC? And is there any merit to this thing I’ve heard of where people will create an LLC in another state different from where they live because the fees are lower?

JH Sure. I’m going to take the last part first. If you have ever noticed, lots and lots of corporations are Delaware corporations. So what they do is they form their company — and usually these are the publicly traded companies, but it’s beyond that. Delaware tried to create a very business-friendly situation where people could go and form their entity and operate in their own state. So lots of people do that. You can form an LLC in another state. Now what you do need to have is some sort of an address for your register agent there, and there are companies that do that you wind up paying a fee to them for that, but that’s usually something like 30 bucks a year for the professional process receivers — or professional registered agents, as it were. And then you can come back to your own state and what you do is you file — in Indiana, you basically file as a foreign business entity. And, again, these fees differ from state to state. I know a little bit about Massachusetts, Allissa, and I shudder to think what they might charge for that. But in other states in cheaper. So you might be able to — in Indiana, when you file your filing fee for your LLC in Indiana — I just did one the other week, and I want to say doing it online it costs $97 was the filing fee. And then there’s obviously my fees for preparing the documentation to go with that. So if it’s $97 here and I don’t know — let’s say it’s $100 to file as an out of state entity in Massachusetts, there you go. Then there’s $200 instead of $500. And you can do it that way, and you can still maintain that protection. You can file in other states and that’s one way. You do want to check before you do that in terms of if I want to be operating as a foreign entity in this state, are the fees cost-prohibitive or not.

The other question — and this is something I haven’t looked into, but massage therapists are often regulated at the state level, and if they are, what are the requirements there? Is there anything that prohibits you from being an out-of-state entity practicing massage therapy? I don’t think there is, but it’s possible. So that’s something you’d want to check into or have a lawyer check into for you.

AH Got it.

JH But you can probably find out by calling your state licensing board on that.

AH That’s — yes. That’s not even a think I had even though of, but yeah that makes sense. A lot of states will with their licensure will regulate who can own a massage business. In some states it has to be an actual licensed massage therapist in order to actually get an establishment license, so yeah. I hadn’t even thought of that. That’s great. Thanks, Jeff.

JH But you can — obviously the individual can have that license and then the business could be an out-of-state corporation as long as they have the required licensing, I would hope that even in Massachusetts maintain that level of freedom for people.

MR How does being an LLC affect your taxes?

JH Well, I am — let me just say this right up front, I am not a tax lawyer and I am not an accountant. But when you form a business entity and become self-employed, you can wind up paying what’s called self-employment tax so that you’re not receiving, necessarily, wages as a W2, but whatever comes in through the business could wind up being taxed. And when you fill out your taxes, there’s a form you fill out that helps create what the self-employment tax is. And that is something that hits you more so than the typical taxation. And I’ve talked to various accountants over the years about this, and what I’ve heard is the way you get away from the self-employment tax is to make what’s called the S Corporation election so that you can start paying yourself as an employee through the business during the year. And the question becomes at what point is it worth it to engage an accountant and go through the steps to make that election. I have heard everything from $10- or $20,000 of income to $50- or $60- or $70,000 worth of income is when it reaches that point. For my understanding and my standpoint, it seems to be when you hit, in my personal view — not as a piece of legal or financial advice — I trust the people who told me that it’s that $60-70000 a year. When you hit that threshold when it makes sense to make the investment to deal with an accountant and get the S Corp election to have yourself paid on those regular wage draws so you minimize any self-employment tax that you might be paying.

MR Yeah, I’m glad we touched on that point because you and I had this conversion, and when I asked a similar question — because I was forming a new entity that was a little bit different than the one I had normally formed in the past — and I did confirm this with my CPA and she did confirm what I said, which is at that same kind of threshold that you mentions that you do want to be taxed as an S Corp because it’s more advantageous from a tax expense perspective. And at that point, you do want to pay yourself as an employee, which means setting up a payroll system and doing your W2 payroll. I think it’s an interesting point to talk about that a lot of massage therapists might not think about: as you start to make more money and get more established in your business, it’s not as advantageous just to write yourself checks from your business account. It’s actually more advantageous from a tax standpoint to set up a simple payroll system and just pay yourself through payroll. Is that what you’re saying?

JH That is correct. And the first person that I ever heard this from is when I was first starting my firm, and he told me that he had his accountant shift him to the S Corp when he was making about $80,000 a year. And when he did that, he saved himself about $10,000 in taxes. So if you want to think about it in those terms, there’s got to be a threshold point where it makes sense to do it. And I think a lot of that is going to depend on the market you’re in, the accountant that you use, how much the accountant charges for helping to set that stuff up, and what your ongoing expenses are. But the other point of that is if you’re someone who has employees who aren’t just contractors that you can just write a check and have them be responsible totally for their withholding and just give them a 1099, but if they’re actual employees that you’re paying W2s, it makes absolute sense to shift yourself to an employee as well and start getting the income in that way.

MR Ah, even if there’s no income threshold to consider. Even outside of that —

JH Well, if you’re doing W2s for those employees already, then of course talk to your accountant about this. But if you’re doing W2s and treating people as employees already, I would think it’s probably not that difficult to add yourself as well so that you can get the benefits. Because the question of the benefits of the S Corp election really is the question of the cost of setting it up and the administrative burdens of dealing with that.

MR Okay. Yeah, my CPA told me it was fairly minimal in terms of cost and burden. And to be clear, you remain an LLC, you just are simply taxed as an S Corp? So you still remain the same —

JH That is correct.

MR Okay. All right. Interesting. A lot of interesting nuances here. So are there any other types of business entities besides an LLC that you would recommend massage therapists consider?

JH Honestly, I wouldn’t. The other entities that are out there, there’s obviously the sole proprietor, which just means hi, here I am, I’m an individual, and I’m doing this business. That is zero protection. The second would be a partnership. That partnership, again, you can still be personally liable as a partner, but you’ve got other partners who are also going to be liable as well, so you’re potentially spreading that liability out across other people, but someone can still come after you personally. Then you can get into a limited liability partnership, where only certain partners, the limited partners are the ones — and general partners and you can shift liability in that way. But, again, what you’re really looking for whenever you get out with a business that’s outward facing dealing with clients and people out there is you want that limited liability of the LLC. You still have the same limitations with the corporate entity when you get beyond the LLC. And the corporate entity is the more formal, more complex, harder to follow along, maybe I’ll just call it unwieldy entity to deal with. If you’re ever in a company that is growing to the point where it’s taking on venture capital and angel investors, you probably will wind up shifting from an LLC to a corporation, but at that point the lawyers who are bringing in that capital are going to come in with the agreements and you’re going to negotiate it at that point. Until then, if you’re in a business that’s going to grow to that extent, to me, the LLC is the most efficient, most effective way to form your business, to maintain your business, and to protect yourself from liability.

MR This has been an awesome dive into this topic. I knew it would be. I think I am out of questions. Allissa, what do you got?

AH I’m covered. I’m covered, yep.

MR [Laughs]. Allissa’s snacking over there.

AH Sorry. I had my mic up because I was drinking my tea. I’m covered. I am fully saturated and have lots of things to re-listen to and think about.

MR Wonderful. Well, is there parting advice —

JH Thank you guys very much.

MR Yeah. Is there any parting advice, Jeff, that you would offer to our listeners who are massage therapists? And, again, some are solo practitioners, just them, some have independent contractors, some have a larger facility with employees. It’s a little bit across the board there. But is there any parting advice beyond what we’ve talked about that you would share with our listeners?

JH Well, if we go back to Allissa’s question where you have the solo practitioner who’s thinking about the cost of establishing an LLC, maybe they should talk to some of the other people they know in the industry and say what are you doing here? Find the ones who have done it. Find the ones who are LLCs and find out if it’s been worth it to them, because I think you’re going to find out it was. And at the end of the day, some of this is just protection. You certainly want to make sure you have insurance, and this is an extra level of protection in the event your insurance doesn’t cover everything. But it’s one of those areas where you can learn a lot, and I think this is probably one of the reasons you guys have this podcast. You can learn a lot from others in the business in how they’re doing things as well.

MR Right on. Thank you. This has been absolutely amazing. I love it. Why don’t you wrap up by telling our listeners where they can contact you. I know you are licensed in Indiana. A lot of our members and listeners are in Indiana. Obviously, I’ll just give a little plug; hope you don’t mind. Definitely contact Jeff if you have any legal questions about your practice in Indiana. Would it be okay to say that you probably have connection in other states as well, so if someone wants to contact you and maybe get a recommendation for an attorney in their area, you might have some connections here and there? Is that true?

JH I do know some people in some other jurisdictions, yes, so I might be able to do that. And if not, maybe through a couple of degrees of separation we can find somebody for them. But I practice in Fishers, Indiana, which is central in Indiana. I represent people all over the state. I’m not necessarily limited to just people in my general area. Some of this stuff is stuff you can do remotely with people. You can reach me at jeff@heinzmannlaw.com, which is H-E-I-N-Z-M-A-N-N-L-A-W.com, or I also have a Facebook page for the business, which is facebook.com/heinzmannlaw. I would welcome the opportunity to talk to or hear from any of your listeners.

MR Awesome. We’ll also put links to your contact information in our show notes on the website so make it super easy to find you.

JH Great. Michael and Allissa, thank you very much for having me today. I really appreciate it.

MR Thank you, Jeff.

AH Thank you. This has been enlightening.

MR Yeah. It’s been absolutely amazing. Thank you so much, Jeff. We’ll wrap it up there, then. Reminder, you can visit us online at massagebusinessblueprint.com. There’s a ton of resources there as well as, of course, information about our premium member community. If you have a question or a topic or anything you’d like to give us feedback on to cover in future episodes, email that to us at podcast@massagebusinessblueprint.com. We appreciate all the iTunes reviews and everyone who’s been sharing this podcast with their friends and colleagues. Thank you, thank you, thank you for that. Appreciate you joining us today. We’ll see you next time.

AH Bye.

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