148 - Step 4 - Entity Structure - Tax Strategy Framework

December 22, 2025

In this episode, we cover Step 4 of the Tax Strategy Framework: Entity Structure and why it plays a critical role in effective tax planning.

We discuss how entity choices impact taxes, liability, and long-term growth, and why many business owners unknowingly limit themselves with the wrong setup. This episode focuses on how to think about entity structure strategically, not just how to set one up.

If you want a smarter framework for making better tax decisions, this episode will help you see entity structure in a whole new way.

Episode Transcript

(Transcribed by TurboScribe.ai. Go Unlimited to remove this message.) All right, we are on number four of

eight for this tax strategy framework that I

do recommend.

Everyone goes through every single one of the

steps of the eight.

Remember, if you need the spreadsheet that shows

all the things I'm talking about, it is

in the Wealth Game Basics course.

You can just download for free through wealthgame

.io or for any of the Wealth Game

Alliance members.

But this number four, so four of eight.

So it's all pretty exciting, but I feel

like this I love this part of it.

So if you've ever seen me draw on

the whiteboard, this part number four is the

entity structuring.

And this is when I get a little

creative with the whiteboard because it's when we're

showing like the relationships between your entities and

LLCs and corporations.

It's kind of like when the brainstorming session

really starts for me.

But I would do this yourself.

Like as you start thinking about different entities

you own or whether it's assets.

And when I say entities, it's LLCs, corporations,

trusts, foundations.

It could be all any sorts of those.

So I don't want to confuse you with

that, but sometimes we'll just use entities for

referencing any of those different things, but this

is called entity structuring.

So this is I'd say, well, these are

all important things.

You've got to go through all of them,

but just by simply changing, which it is

easier said than done sometimes, but changing the

way and kind of the, I'll call it

like the pathway that your, say your business

receives income or you receive income just by

changing the pathway.

Um, you, you can completely change the way

that something is taxed.

And it's kind of weird.

Like, well, it's still, if I get $10

,000, $10,000 is $10,000.

So, and if it goes to my bank

account, isn't just going to be taxed the

same and it's not.

Um, if it goes through one of these

different entities, there's all sorts of different ways

that it can be taxed.

So to start, uh, and I I'll start

with this because it is the most commonly

used entity, the most commonly used, uh, structure

organization that people use to start with their

planning.

And it is an LLC.

I'm sure you've heard of an LLC.

Everyone has heard of an LLC.

You've either seen it advertised from other businesses,

or if you start, if, if you have

a business, you may have an LLC, or

if you're getting into rental properties or anything,

you might, might have an LLC already here.

You've, you've likely heard of them, but LLCs

are very adaptable.

There's a reason why they're most popular and

very commonly recommended by attorneys and for like

estate planning and legal and asset protection planning,

but also recommended by CPAs just to help

with like the tax flow.

Remember the pathway of how you receive your

income.

It helps with the flow of the way

you receive that because it's flexible and adaptable

depending on your specific situation, but LLCs can

be taxed in multiple different ways.

And so it's, it'll get confusing.

If, if I just say LLC, it doesn't

mean the way that it's taxed.

An LLC just means an organization like a

way of doing business in a state.

Like it's, you're registering a name with your

state.

It is a legal entity.

So there's some asset protection, asset protection, and

like legal liability type of stuff that needs

to go on as well.

But from the simple approach of thinking about

it, it's just a name that you're, you're

operating under in the state.

And you got to register that every year

with the state, but just taking that step

alone, just registering the name with the state,

even if you have a bank account with

it, that doesn't change the way that you're

taxed.

So to quickly summarize in there, I've got,

I think is one of the first podcast

episodes.

I talk about the four different ways that

LLCs can be taxed.

So I won't do a deep dive into

all that, but I just want to make

sure as we're talking about this, you're, you

remember that.

So an LLC can be taxed.

An LLC can be forgotten or ignored, or

in the IRS terms disregarded for tax purposes.

You can set up an LLC.

It could be under your own name or

under one of your other businesses, and it

can just be completely ignored for tax filing

purposes.

So you could set one up just for

legal, legal and asset protection reasons.

That's the first one.

It could be, it could be set up

and used, but completely disregarded ignored for tax

filing purposes.

That's number one.

Number two is if you have more than

one owner in an LLC by default, it,

it will become a partnership.

And that's kind of odd to think it's

like, well, I didn't, when I went to

the state and registered this LLC, I didn't

click the partnership button, but an LLC for

tax filing purposes, when you have more than

one owner, it's a partnership for tax filing

purposes.

So that's number two.

Number three is if you have an LLC

and whether it's one owner, so just yourself,

or you have multiple partners, you can elect.

So you can, you can make a choice

and file some forms with the IRS to

change that LLC and request to have it

taxed as an S corporation for tax purposes

and S corporation.

We've done, I've done a few videos on

this.

And as a business owner, if you've heard,

you've probably heard of like, should I convert

to an S corporation without diving into all

the details on it today, an S corporation

actually does change the character of the flow

of that income.

It changes it.

So it's not subject to self-employment tax

if you have that type of income.

So it's not subject to self-employment tax

and it changes it to be ordinary income.

There are some planning opportunities there where on

one side, you got to think about it

from a few different angles.

On one side, you do save money on

not having to pay self-employment tax, but

there's extra paperwork.

You've got to follow, you've got to go

within like the recommended guidelines of the IRS.

You got to pay yourself a reasonable wage.

So you've got to run the numbers to

see if it actually makes sense, but an

S corporation could save a considerable amount of

money.

Remember that's the third way that an LLC

can be taxed.

And then the fourth one, an LLC can

be taxed as a corporation.

When you hear the word, and I know

I just said S corporation, but a corporation

is different than an S corporation.

So a corporation files on its own.

Think of like an individual and how they

file their own tax return and their names

at the top and they pay their own

taxes.

That's what a C, this is a corporation,

which is a C corporation.

It files a completely standalone tax return.

That income that a C corporation earns, it

doesn't automatically flow through and have it be

taxed by the owners like with partnerships and

S corporations and disregarded owners.

If or disregarded entities like the LLCs.

So if you, if you understand that concept

of, on one hand, I told you those

first three ways that LLCs are taxed.

Those are flow.

That's a flow through option where the business

does earn the income, but it sends the

income off to the owner like you or

your partners as the owners.

And for the final tax reporting and the

tax calculations, those entities don't pay income taxes

on their own.

C corporations, they just, they're by themselves.

They're a standalone entity file and pay their

own taxes.

Think of when you think of C corporation,

think of like publicly traded company, like large

corporation.

It does.

If you own part of Apple stock or

Tesla stock, you're not paying on taxes on

their income.

You might get dividends, but you're not paying

tax on their income.

It's paying its own tax on its own

income.

So that's even though some of like the

way, or the reason I'm talking about these

entities and these different options, because we want,

I want people to have access and knowledge

about these, these big organizations, even if big,

only big corporations are using them in certain

cases, there can be really good like tax

scenarios where you're saving quite a bit of

taxes.

If you're using some of those same structures

that the big corporations are using.

So LLC.

So with entity structure planning, this number four,

there's LLC planning, where you can kind of

think of that one of those four ways

that I just mentioned of how the LLCs

can be taxed.

And then some other entities just to bring

up and to dive into a little bit

of the details on them.

If you're, if you're like, Hey, I don't,

I don't even have, or I don't have

a business.

I don't have rentals.

Like, is there any entity structure planning for

me?

Say you're an individual, an employee, or you're

ready to getting ready to retire.

And you're just, you've got W-2 income

and like a regular investment account.

You're like, I don't need all this complexity.

And you could be right.

You might not need an LLC at all.

So there's still some entity planning that usually

comes up here.

And it's more correlated to like estate planning,

but this is when I'd want you to

think about trusts.

So trusts, there's all sorts of types of

trusts, but at a minimum, like a family

living revocable trust, those are the types of

trusts where if you were to pass away

your assets, whether it's bank accounts or a

house or vehicles investment accounts or life insurance,

you can have the assets go into a

trust.

And it's kind of like a will, a

will that already has ownership transferred when you

die and it's automatic and immediate.

So it saves you the step of going

through the court and proving the will.

And it can potentially stop people from contesting

it, but you're just taking care of these

things before you die.

So I would definitely consider a trust, not

only for estate planning, but also for some

potential asset protection.

There's not a lot of income tax, like

with that type of trust, there's not a

lot of like income tax implications.

And so planning with an attorney and estate

planning attorney, a lot of, well, if they're

an estate planning attorney, they're going to have

experience in doing that type of trust.

There's other types of trusts just at a

high level to bring them up.

Like a lot of times it's with business

owners, but there's like charitable trusts.

There's ways you can donate parts of your

business to a trust or proceeds from the

sale of a business to a trust.

There's a lot of like unique planning scenarios

you can do with trusts, which can get

pretty complicated, but the tax results can be

pretty amazing and takes a lot more planning

than just signing one document and transferring some

things there.

You want to understand that all the implications

there, but if you are, if you need

some exit planning related to a business sale

or a large asset sale, potentially looking at

those, those charitable, charitable remainder trusts or other

types of trusts that could help significantly with

taxes.

So then the other one, probably, yeah, I

think just the last one I'll bring up

here are private foundations and private foundations are

another one of those for, doesn't have to

be for business owners or people that own

assets that need to be in LLCs or

partnerships, but a private family foundation, these are

a lot of times you'll see like athletes

form a foundation, politicians or billionaires or wealthy

people have, they have a foundation.

They're usually pretty, or they're usually pretty two

-sided.

There is a philanthropic reason behind it.

Usually, maybe not always, but there's also a

tax reason behind it as well.

So foundations, and I've done full episodes on

this, but think of this in your entity

planning.

If you donate money to a foundation, you

can get it just from high levels to

what it is.

You can get a deduction, like you're donating

to a charity.

You can't just pull the money back out.

You've got to leave it in the foundation.

It's got to be for a mission and

purpose.

But as the money is in there, if

it's reinvested, if it's invested, like in typical

investments, the tax on the gains from that,

the tax on the income from that is

very low, like just over 1%.

So that's one of the main reasons, the

tax reasons for it.

And then the first reason was really, you

get the deduction when it goes in.

And then when it's invested, there's a very

low tax rate on the investment inside your

private foundation.

But then the catch, which is not much

of a catch, but you've got to give

away at least 5% of the value

of your foundation every year.

So it could be getting a return on

the investment at five or 10%.

So it could perpetually grow, but from the

beginning of the year, you got to do

a calculation to give away at least 5%.

So hopefully that makes sense.

I know there's so much we could dive

into in each of these, but remember from

the beginning, remember how LLCs are taxed.

There's asset protection reasons.

There's estate planning reasons.

Tax, like the income tax planning reasons, I

talked about the flow through, the way that

the income flows through to you can be

taxed differently.

S-corporations are good for getting rid of

self-employment tax.

Partnerships are good for splitting income and splitting

expenses between you and your partners.

And then C-corporations, remember those are those

standalone entities.

So I'd recommend if you look at some

of the videos where I've drawn this out,

go and draw out businesses that you own

or potentially want to own and start looking

at that.

But in the Wealth Game Alliance or Wealth

Game Basics, we have the video where I'm

just, I call it like the ultimate entity

structure, where I talk about all this and

I draw it all out.

And in the Wealth Game Alliance, we're going

through those very specific scenarios for people.

And if you've got nuances or questions, we

cover that there in the Wealth Game Alliance.

But yeah, thank you.

And we will finish these other ones here

pretty soon.

See you later.

148 - Step 4 - Entity Structure - Tax Strategy Framework

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