Jonathan Clements's Blog, page 10
October 10, 2025
LLC Tax Benefits
“Can you just open an LLC and write things off?”
That’s a real question someone asked, and I’ve seen this question asked many times.
There are a lot of misconceptions around LLCs, their purpose, and how LLC changes your tax structure. With TikTok, there are “tax experts” sharing terrible advice, so let me clarify how it could be useful.
First, what is an LLC?
An LLC is a Limited Liability Company. It’s a business structure allowed by state statutes. For example, if you want to open an LLC in Illinois, you can simply go to the IL Secretary of State website and open one:
Depending on how many members you have, you will create a “single-member LLC”, meaning it has one owner, or multi-member LLC. If you have a multi-member LLC, it’s treated as a partnership by default and must file Form 1065, with each member receiving a Schedule K-1.
Tax treatment
Say you are a single owner and want to start a side hustle selling widgets online. If you go to your Secretary of State website and open an LLC, you’ll be treated as a “disregarded entity” by default for tax purposes. A disregarded entity is a business structure that is “ignored” for federal income tax purposes. Your single-member LLC won’t have to file its own tax return. Instead, you’ll report all income and expenses on Schedule C with your Form 1040.
In contrast, let’s say you started your side hustle selling widgets online but didn’t create an LLC. You would still report income and expenses on Schedule C with your Form 1040.
In other words, just opening an LLC does absolutely nothing from a tax standpoint for this individual. They’ll still be able to write off expenses (assuming they are ordinary and necessary in carrying on the trade or business and it’s not a hobby), regardless of whether an LLC is created or not. You’ll also pay the exact same amount of tax in a disregarded LLC structure as you would as a sole proprietor, since both are reported on Schedule C.
Note: An LLC comes with a yearly fee. For example, in California, there’s an $800 minimum fee for maintaining your LLC. In other states, it could range between $100–200 per year. This means that further analysis is needed to determine whether one should be created in your situation and how you plan to operate.
S corporation classification
As I mentioned, an LLC is a disregarded entity for a single member LLC by default. However, you could elect your LLC to be taxed as an S corporation for tax purposes by filing a form.
This could allow you to potentially save money on self employment taxes. You would have to pay a reasonable salary to yourself, and take the rest of your income as a tax free distribution.
There are circumstances where it makes sense, and others where it doesn’t. Once you elect an S corporation status for your LLC you have to:
Pay yourself a salary, which means that there is an additional compliance cost that comes with it. You can use a payroll software, but they come with a cost (typically start at ~$40/mo)
File Form 1120. If you use a CPA, that means additional $$$ during tax time.
Pay FUTA/SUTA taxes
Some states have an additional fee on S corporations
So, while an LLC could be classified as an S corporation, further analysis is needed to calculate the full tax savings after taking into consideration the compliance cost. Generally, you will likely see a benefit of choosing one after reaching $100,000 NET income from self employment.
But, just opening an LLC doesn’t accomplish that.
Legal aspects
One of the main benefits of an LLC, in situations where there is no tax difference (e.g. solo proprietor vs single member LLC, and when an S corporation isn’t worthwhile), is the legal protection.
Because an LLC is a separate legal entity, it typically protects the owner’s personal assets from business liabilities. However, this protection isn’t absolute, and the “corporate veil” can be pierced. For example, if you fail to keep business and personal finances separate, creditors may be able to go after your personal assets.
This is why it’s crucial to set it up correctly and maintain all required formalities, such as having an operating agreement for your entity. Please contact an attorney if liability protection is a concern.
To wrap it up
Here are some questions to think through if you are considering creating one:
How risky is the business I’m operating in?
If you are just starting out, is it worth paying the $100-800/yr fee to create an LLC?
Am I making more than $100,000 in net income that S corporation classification for an LLC could be helpful?
An LLC is first and foremost a legal protection tool, not a tax “loophole”. It doesn’t give you new write-offs, but it can protect your personal assets and, if structured right (like with an S corp election), may reduce self-employment taxes once you’re earning ~$100,000.
As always, this post is for educational purposes only and is not legal or tax advice. Always consult a CPA or attorney for your specific situation. I hope you learned something new today.
Bogdan Sheremeta is a licensed CPA based in Illinois with experience at Deloitte and a Fortune 200 multinational.The post LLC Tax Benefits appeared first on HumbleDollar.
Selling our Business – The Aftermath
On the 8th August we worked the morning, then put on a barbeque lunch for our staff and customers. And by 5pm it was all over. The sale was complete, our bank balance was a bit higher, and a group of people all entered a new phase of their lives.
The sale and handover of our automotive workshop went very, very well. The new owners spent about a month working along side us, and we tried to impart every morsel of knowledge that we possibly could. Every discussion with staff and customers was focused on “business as usual”. And two months later, I’m thrilled to say that the handover process and the efforts of the new owners achieved that aim. All of the staff have continued in their roles, and from what I gather are pretty happy with their situation. I regularly drive past and the daily buzz I remember seems ever present.
It is really satisfying to see a small business continue to thrive after you’ve spent year after year working to build it up. It’s also a good to see that the future of the business is probably better off in new hands. Younger, more energetic, new ideas. We were good at what we did, but we were tired. It feels like we passed the business along to new owners at the right time. I’m optimistic about it’s future success.
Some may recall from previous episodes that my Dad, now 77, is having his second go at retirement. At 68 he was clearly not ready. Being a long term business owners does not always fit well with having a healthy range of activities and relationships outside of work. Fortunately this time he was down to 3 days a week, so had a softer transition into retirement life. I think that he also had a better sense of being “ready”. I think there was probably a feeling that by 77 he had truly done enough, contributed enough. His physical stamina, despite being excellent for his age, was declining further each year. I think that sometimes he needed the full 4 days to recover from his 3 days of work!
I’m pleased to report that his second stab at retirement seems to be going very well. He appears to not being annoying Mum too much. He is keeping active, but without the constant sense of urgency that our business demanded. I think this time he will be OK.
As for me, I’m in the “what next” zone. I worked for a about 3 weeks in my old field, but quickly realised that ship had sailed. So I politely excused myself, with no hard feelings. I really look forward to working again – feeling like I’m contributing, the daily routine. Based upon the maths we could probably retire, but I just don’t want to yet. I want to continue being someone that adds something to society. I’ll continue in volunteer roles that I’ve already got, but I still have an insatiable urge to pull my boots on every day and get out there.
Not sure what that might be…. I’ll keep you posted!
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The Wine Chronicles
I became a connoisseur of fine wine 55 years ago, when I was 18 years old. If you’re wondering if a kid that age could legally buy wine, the answer would be heck no. However, by virtue of my job in the beverage department at the local supermarket, I had juice to get my juice. The wine salesman was happy to bring me a case of their finest, and I would pay the wholesale price in cash. He would gladly put it into the trunk of my 67 Cougar XR7. I was hot stuff. The envy of all my friends.
And what was this fine wine that I procured illegally? No rotgut Ripple for me, no sir. It was Boones Farm Strawberry Hill, yummy. My taste soon ameliorated, and I found myself sipping Riunite on ice, that’s nice. Then came Bell'Agio, followed by Asti Spumante
Word got out that Smith could get wine, and I was soon placing orders and picking them up at the wine distributor. On one occasion the wine salesmen were involved in a sales contest. On the final day of the contest, my dealer (Chopper) was in 2nd place by a fraction of a %point. Chopper gave me a call and I took my van to the warehouse and bought about 30 cases, landing him in 1st place, with a brand new car as a prize. The other salesman, John, also an acquaintance of mine, luckily, did not hold a grudge. Some years later, John owned the busiest video store in Toledo. I bought my first VHS machine from him, and my ex-wife worked for him for several years. He did enjoy reminding me of the car I cost him.
That brings me to the other night. Our age 55 community held a wine event at the clubhouse. These days I enjoy a nice Bordeaux or Cabernet. Just a couple nice pours is all I need. Our neighborhood is still growing, and we met some great new neighbors who moved in over the summer. I’m looking forward to other community events and more new friends.
Cheers
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A Short History of Money
I've been feeling pretty ropey these last few days, with a dose of COVID keeping me from my normal activities. Reading my beloved history books has been keeping me occupied. My current read is “The History of Money by Jack Weatherford”, highly recommended if that's your thing. Because I've nothing better to do, I thought you might find a little article on the subject of interest.
Let's face it, the concept of a "store of value" is nearly as ancient as old Father Time, arising from our need to preserve today's labor for tomorrow's use. Before money existed, this was just about anything useful for survival. I think learning how we moved from trusting cattle to trusting central bankers tells more about human nature than any boring economics textbook.
In the very first barter systems, your wealth was perishable. Think grain, livestock, and gathered food. The first collective human brainwave was finding durable commodities, because you can't exactly save three years' worth of fish for your daughter's wedding.
This is when commodity money entered stage left and took a bow, from around 9,000 BC to 1,000 BC. Development was erratic, not universal, but who's counting? Early stored wealth needed intrinsic value and durability. Cattle and grain dominated in Mesopotamia, for example. Grain became Sumeria's first unit of currency, recorded in the world's first spreadsheet, carved in clay rather than Excel. Elsewhere, salt, shells, and furs emerged as money because they were desired, durable, and didn't rot.
The next breakthrough came with precious metals, possessing handy properties: durability, the ability to split, portability, scarcity. Unlike cattle, gold wouldn't wander off or require feeding. To my mind, that was a considerable improvement.
Sometime in the region of 3,000 BC, standardized metal weights, what we now call precious metal bullion, became common stores of value in the ancient world. You trusted the metal's value to pay for your next temple construction, not the local warlord or king. Rarity, not the ruling mob, guaranteed value.
The next evolution was coined money in 600 BC. The Lydians, a kingdom in modern-day Turkey, stamped guaranteed weight onto shiny bits of metal. This introduced trust, the top dogs guarantee. It helped that the metal's inherent value ensured its role as stored wealth. Basically, the king's face said "trust this," while the gold said "but even if you can't, I'm still valuable."
That just about wraps it up for the next 1,500 years or so, until I guess what we could call the "modern era," when another more recognisable shift starts to occur: the change from intrinsic to extrinsic value, from metals with intrinsic value to paper with nothing more than an extrinsic promise to back its value up.
Taking a leaf out of the great merchant families' use of promissory notes that had developed because the merchants couldn't be arsed hauling tons of coins everywhere they wanted to trade, early banks started issuing paper receipts for gold stored in their vaults. The paper was worthless, although I guess it would be great for starting fires, but represented a claim on real value. Trust now depended on the issuer's ability to redeem receipt notes. This worked brilliantly until someone issued more receipts than gold, discovering the art of lending out money you don't actually have. The first person to try this wheeze was either a genius or desperate, quite possibly both.
To overcome this problem, a new idea was floated: the Gold Standard, from the 19th to mid-20th century. Currencies were pegged to specific amounts of gold. The note burning a hole in your pocket was a government promise: "This represents actual gold—but please don't all ask at once." When everyone did, it was called a bank run—not an ideal situation!
When the US ended gold convertibility in 1971, the world shifted to what is called fiat money: currency backed by nothing but government decree and collective trust. We essentially replaced "this represents gold" with "this represents governmental faith and credit, maintained through sound monetary policy." It's now trust all the way down. No gold required. Just faith in central bankers. You can see why central banks have become so important and stock markets hang on there every word.
I'm sure you're getting bored reading this. Happily, we've arrived at the end of the road, or possibly not, I haven't discussed the next great idea: Bitcoin and the vast array of cryptocurrencies. Quite frankly, I'm feeling too unwell to tackle that hotbed topic. I'm away for some tablets and a little lie-down.
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October 9, 2025
2026 IRS Inflation Adjustments
The IRS just published their 2026 inflation adjusted numbers.
Some notes:
1. Standard Deduction
In 2025, the standard deduction for a single taxpayer is $15,750 ($31,500 for married filing jointly). In 2026, the standard deduction is increasing by $350: $16,100 (single), $32,200 (mfj)
2. Brackets
2025 brackets:
10% for income $11,925 or less ($23,850 MFJ)
12% for income over $11,925 ($23,850)
22% for income over $48,475 ($96,950)
24% for income over $103,350 ($206,700)
32% for income over $197,300 ($394,600)
In 2026, the ranges are:
10% for income $12,400 or less ($24,800 MFJ)
12% for income over $12,400 ($24,800)
22% for income over $50,400 ($100,800)
24% for income over $105,700 ($211,400)
32% for income over $201,775 ($403,550)
or ~4% increase in the income ranges.
3. Capital Gains Tax
For 2026, 0% capital gains tax will apply if your taxable income is/less than $49,450 (single) or $98,900 (mfj)
4. Retirement contributions limits
The official figures haven't been reported yet, but estimates indicate that Roth IRA contribution limits will increase by $500, and 401(k)/403(b) limits will increase by $1,000.
5. Annual gifts
The annual exclusion for gifts is not increasing for tax year 2026.
6. HSA
For 2026, participants who want to contribute to an HSA must have a deductible that is not less than $2,900 (a $50 increase), but not more than $4,400 (an increase of $100). The HSA contribution limits for 2026 are $4,400 for self-only and $8,750 for family.
7. Others
Estates of decedents who die during 2026 have an estate tax exclusion amount of $15M, up from a total of $13.99M from 2025.
For tax year 2026, the foreign earned income exclusion is $132,900 up from $130,000 for tax year 2025.
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Retirement Income Goals: Bottom Up Beats Top-Down
When I was younger, I pictured retirement as a life much like our working years, minus child-raising and commuting costs, but with more travel and higher medical bills. That vision was easy. The harder part was translating it into a retirement income goal.
This is where confusion sets in, and why discussions about “income replacement ratios” often go in circles. People’s situations differ too widely for one-size-fits-all advice. Some work jobs with steady income, others have income which varies a lot each year. Some rent, some start retirement with a mortgage, some own homes outright (researchers factor “imputed rent” into replacement ratios). Some are big savers, others scrape by. Single vs. partnered, median vs. high income, pension vs. no pension—all change the math.
Even defining “base pay” is slippery. Should steady bonuses count? What about quarterly stock compensation that’s taxed like regular income? And which years of income do you use—your last, your peak five, or an average? Add to that some semantic confusion over whether base pay means gross or net of taxes, and you see the problem.
In fact, taxes complicate things further: effective tax rates are often lower in retirement, especially with Roth accounts, another way the replacement-rate metric might lead you astray.
After wrestling with all this, and gaining a few years of retirement hindsight, I’ve concluded the replacement-rate metric is more misleading than useful, unless your finances are unusually simple.
A better planning approach is bottom-up: go through a year of your actual expenses with Quicken, Mint, Excel, or your bank's web site; adjust for what will rise or fall in retirement; be clear about fixed vs. discretionary; add a cushion for surprises. That spending target gives you a far more practical goal than chasing an abstract ratio.
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Why Delaying Your Social Security Benefits May Not Make Sense
https://www.wsj.com/personal-finance/...
Gift link to an article by Derek Tharp in the WSJ from a few days ago. He was (? still is) one of the contributors to Kitces et al.
It’s refreshing to see an article written that suggests the opposite of the “dogma” of delaying SS, which I personally have never agreed with.
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Hit With Dynamic Pricing! Has this happened to you?
Imagine our surprise when, thanks to dynamic pricing, we actually paid more at the box office.
We were in the city with close friends on Thursday, September 4th, and decided to buy tickets for &Juliet on October 19th. On Sunday, September 7th, out of curiosity, I decided to go online and check the location of the tickets. I was surprised to see that my seat was still available. Not only that, the seat I paid $250.00 for was showing a price of $192.50. Concerned that an error had been made, I called the Stephen Sondheim box office.
The good news: my seat was confirmed. The bad news is that I was told the price we paid was accurate because they use dynamic pricing. Apparently, there was a huge demand on September 4th for tickets on October 19th? I checked, and the 19th is neither a holiday weekend nor close to Thanksgiving and Christmas. The person on the phone told me that the fees on that $192.50 were $15.00, or a total of $207.50 if I had waited until we got home and called.
I paid $42.50 more for the same ticket for the same future date. Would the fees online have been $42.50? Maybe I didn’t check.
This was the time for me to look at the definition of dynamic pricing and find out if it was legal. By definition, “it is the practice of varying the price for a product or service to reflect changing market conditions, in particular the charging of a higher price at a time of greater demand.”. The hotels use it, but tend to show the fees involved. Uber and Lyft use it. That’s more understandable since rush hour creates a high-demand situation.
Is October 19th a day of high demand? How do I find out? Even if I wanted to change the date, Broadway tickets are not exchangeable.
From now on, we will have to jump through hoops to find the best price.
What started as demand-based pricing has turned into a quagmire for consumers and gotten much more complicated.
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Are You Invested in International Markets?
https://www.morningstar.com/markets/will-dollar-keep- falling?utm_source=eloqua&utm_medium=email&utm_campaign=MorningDigest&utm_content=None_68062&utm_id=35352
In the first half of 2025, the US dollar saw its steepest decline in over five decades. The DXY index—which tracks the dollar against major trading partners—fell about 11% from January to June. In our view, the US dollar remains overvalued, and its underlying fundamentals are beginning to weaken.
In our view, the “free lunch” period for the dollar may be ending, with depreciation likely in the years ahead as US economic exceptionalism fades.
Morgan Stanley Research estimates the U.S. currency could lose another 10% by the end of 2026.
A Blackrock article from July reports U.S. equity markets were trounced by their international counterparts in one of the
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Are You a Dividend Investor? If so Read This!
https://www.morningstar.com/stocks/st...
The link above from Morningstar discusses dividends vs stock buybacks and how they affect investors.
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