LLC vs S Corp: What Nobody Tells You with Laura Zarrate

If you've ever started a side hustle and thought "I'll figure out the taxes later," this episode is the reality check you need before tax season catches up with you. Whether you're just starting out or already earning consistent income on the side, understanding your tax liability now can save you thousands later. In this episode, I sit down with Laura Zarrate, a CPA and founder of Athena CPAs and Advisors, where she helps six to seven-figure business owners nationwide keep more of the money they earn and has saved her clients more than $10 million in taxes, to break down exactly what you need to know about business taxes. Laura opens up about the most common question she gets from new entrepreneurs: do I need to start an entity, and if so, which one? She walks through why most people start with an LLC, why it's actually about liability protection more than tax savings, and the moment a side hustle should start being treated like a real business. Laura shares the practical first steps nobody tells you about: opening a separate business bank account, understanding what counts as an "owner's contribution" versus taxable income, and why mixing personal and business expenses is one of the biggest mistakes she sees. From there, she gets into the topic everyone's talking about on social media but rarely explaining correctly, the S corp election. Laura breaks down what an S corp actually is (a tax election, not a separate entity), why it can save you real money on self-employment tax, and why switching too soon, before you're earning enough to justify the extra cost, can actually hurt you instead of helping you. We also get into retirement account options for the self-employed (SEP IRA vs. solo 401(k)), the reasonable compensation requirement that trips up so many new S corp owners, and the deductions people leave on the table simply because they didn't know to track them, like the home office deduction and vehicle expenses. By the end of this episode, I hope you walk away with a clearer picture of how to set your business up the right way from day one, so tax season stops feeling like a scramble. We cover: 00:00 Why switching to S corp too soon can hurt you 03:41 LLCs explained: flexible, cheap, and easy on your tax return 06:00 Owner's contribution vs. taxable income 06:48 Side hustle vs. real business: when to make the switch 15:21 What an S corp actually is (and isn't) 16:49 The 15.3% self-employment tax explained 18:16 The W-2 requirement: paying yourself "reasonable compensation" 20:14 Why switching too soon (with losses or income under 50K) backfires 30:07 The home office deduction most people miss 34:50 How to properly deduct vehicle expenses (and why a mileage log matters) If this episode resonated with you, don't forget to like, subscribe, and share it with someone building a side hustle or business who needs to get their taxes right from the start. Taxes don't have to be something you dread, with the right strategy, they become one of the biggest tools you have to build wealth. 💛 Mentioned in this episode: Athena CPAs and Advisors: athenacpas.com Follow Laura Zarrate and Athena CPAs on Instagram: @athenacpas This episode is part of a two-part series. Check out the companion episode on Real Estate Chisme for real estate-specific tax benefits. Start your financial journey: Free Budget Template: https://moneychisme.kit.com/moneyplan... Get more tips in my Newsletter! https://moneychisme.kit.com/4cf43901b1 Follow me on Social Media! Tiktok: Moneychisme IG:   / money_chisme   Support the channel: https://www.buymeacoffee.com/moneychisme //ABOUT ME Hola, I'm Violeta! I am a first generation Mexican immigrant who is on a financial freedom journey through real estate investing, stocks and entrepreneurship. I started my youtube channel to help my fellow peeps in pursuing financial freedom by teaching financial literacy and sharing my experiences. I am the writer of the MoneyChisme blog, a small e-commerce business owner, and real estate investor. *This Link is an affiliate link and I may earn a small commission when you click on the links at no additional cost to you. This helps me provide you with free content, tools and resources!