FLTA S2 E4 | Running A Business


Starting on the path to running a business can be quite overwhelming. There are so many things to consider because there are equally things to lose when we trip over. Our guest in this episode founded his business with the entrepreneur who is just getting started in mind. Don Costa sits down with Tommy Thornburgh, the President of Prime Corporate Services. Here, Tommy helps clear up the confusion by teaching us how to structure our business properly and protect ourselves moving forward. He makes things as simple as possible, touching on asset protection, tax benefits, profit and loss, and showing yourself as a legitimate business to not only the clients you’ll be working with but to banks and lenders as well. Avoid making those expensive mistakes from the start. Join this conversation with Don to learn how to run a real business!

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Are You Running A Real Business With Tommy Thornburgh

This is an exciting episode for me because it’s all about getting things straight. We get into this whole entrepreneur thing where we want to start a business. We have this crazy idea that we’re going to do something like have a business and be a real estate investor. Whatever the widget is, it takes us where we want to go.

Getting legal and set up properly so that we have some protection so we can make sure we’re managing taxes and doing those things. It’s overwhelming. My guess now is going to hopefully clear some of that up for us and talk about some of the ways that we can get ourselves structured properly to protect ourselves as a business to move forward so we don’t have all the brain damage of trying to figure out on our own. Tommy, thank you for being with me now. I appreciate you. How are you doing?

I’m doing great. Thank you so much for having me. I’m excited to be here.

I’m excited to have you. When I started in real estate investing way back in 2003, I didn’t even put any of the properties in an entity. They’re all in my name. I basically flipped everything in my own name and there are a lot of disadvantages to that, obviously, so I want to get into that. We’re going to talk about structuring yourself properly as a business. Before we do that, let’s talk about you. Who are you and what it is that you?

2003, I thought I still had a future in sports which I very clearly did not. That shows how long ago that was. My name is Tommy Thornburgh. I’m the President here at Prime Corporate Services. We’ve been in business for several years now and we’ve helped over 100,000 entrepreneurs structure their businesses. It’s a super humbling number.


FLTA S2 E4 | Running A Business


When we started Prime, we had the entrepreneur just getting started in mind. That’s evolved over the last several years, but I’ve been self-employed since I was eighteen years old. My mom was a real estate agent. My dad owned a brokerage and constantly the conversation was around taxes. When I was eighteen, I got annihilated with taxes from a self-employed standpoint, and there weren’t a lot of ways to turn. There are not a lot of people to turn to talk to. You can hire an accountant or a CPA. You can hire an attorney, but a lot of times when you’re first getting started, you don’t have those resources.

We built Prime Corporate from start to as you grow and as you scale. It’s not about how much money you make. It’s all about how much money you’re able to keep in your corner and your pocket in taxes and asset protection. It’s not the most exciting thing in the world and not your most exciting topic or podcast I’m aware. How can we make complicated topics as simple as possible and bring it home to asset protection, tax benefits, profit and loss, and showing ourselves as a legitimate business to not only the clients we’ll be working with but to banks and lenders as well?

I’m going to disagree with you on one point. I think it’s an exciting topic. To somebody who has not dealt with it before, they’re going to feel like probably it’s not. It’s scary or overwhelming. For me, it’s an exciting topic because I have stepped into every crap hole that you could possibly step into when it comes to doing things wrong with entities.

For instance, in California as an LLC, if you’re designated as a partnership, you are taxed based on your grocery seats. If you hit a certain point, your tax is $6,000 a year no matter what your write-offs are as your state fee so you want to structure your entity or your LLC properly in the state of California for tax purposes so you don’t have that $6,000 burden.

I actually got that one out of the blue one time because I structured an entity wrong and that did a whole bunch of flips under it. To be able to protect people from making those expensive mistakes is huge. I think it’s a great conversation to have. Anybody who’s reading this and is rolling their eyes or wants to turn it off is foolish because this conversation is going to save you tens of thousands, if not hundreds of thousands of dollars.

I totally agree. Every state is different. The benefit that we have to be able to work with people is not everyone does all their deals in the state where they’re located. Fortunately, we’re able to work in all 50 states. Making sure that you have the protection and you’re aware of how you’re structured is going to make a huge difference.

I also tell real estate investors all the time. One of the questions I get is when should I set up my business. Should I wait until I locate my first property? Also, can I just run all of my real estate deals under one entity? A long story short you can do whatever you’re comfortable with but is that what’s best for you?

There’s a huge difference between active income and passive income, not only from a liability standpoint but from a tax standpoint as well. Everyone’s situation is different. We want to make sure that you understand what is best for your situation, not only with where you reside but also with where you’re going to be investing.

Make sure you understand what is best for your situation, not only with where you reside but also with where you will be investing. Click To Tweet

Let’s talk about that. I’m a brand-new real estate investor and I’m getting into the real estate investing game. Maybe I haven’t done a deal or I’ve done a wholesale deal or two and now it’s time to start thinking about setting up my business. What are some of the first things that I need to consider or look at as a young entrepreneur who doesn’t even know which way to go? I’m not even thinking about protection yet because I don’t even have assets yet. What are some of the things that I want to consider when I’m setting up an entity and what is the future going to require of me from that standpoint?

Treat it like a hobby. It will cost you money like a hobby. If you treat it like a business, you allow yourself to open the doors and reap the rewards of what businesses have to offer. From a tax standpoint, you’re able to show a loss of 2 out of your first 5 years in business. Does that mean I don’t want you to make money? Obviously not. What that means I want you to understand is the IRS wants to see that you are showing the intent to treat and operate this as a business.

What I mean by intent, you’ve invested time or money. You’ve most likely invested both even if it’s a book, education, advisory, marketing, or leads. By showing those as business-related expenses, give yourself the protection and tax benefits, but structure your business for the one that you want, not the one that you have.

I think everyone in the US should have a side hustle and business or should be an entrepreneur on some level. One of the first steps is setting yourself up that way. You may not need holding companies and all this additional privacy and protection but having a business entity to utilize. The tax code is 72,000 pages.

It’s a game and a joke but that tax code is there to impact behavior. A lot of that behavior rewards entrepreneurs and business owners. I believe that if you have the goal of being a real estate investor or an entrepreneur at all, setting that up the right way with an LLC makes a lot of sense from the very beginning.

I’m going to ask you a question because it’s something that I struggle with for a long time. If I’m new, do I want to do an LLC or a corp? Give me some issues with each.

The way that I like to break this up to give you a visual here is in two categories. We have an informal business structure and formal business structures. Informal business structures are going to be sole proprietorships and general partnerships. You use your name and your social. Maybe you get an EIN so you don’t have to use your social.

The problem there is there’s no asset protection and there are limited tax benefits. From a formal business structure standpoint, we have LLCs, S Corps, and C Corps. There are a lot of different routes that you can go. When you’re first getting started, we oftentimes recommend starting with an LLC because it keeps it simple and easy.

For profit or loss, there are additional deductions you can take, but that way, you have the protection. You’re showing yourself as a business. Once you make usually $50,000 to $100,000 or more gross, we can change the LLC so that it’s taxed like an S corporation, and that gives you those additional tax benefits that you’re obviously asking about or discussing. Starting with an LLC is always a great place to dip your toe and get started if nothing else.

An LLC is always a great place to dip your toe in and get started, if nothing else. Click To Tweet

Knowing that you don’t want necessarily be an LLC tax as an S Corp right out of the gate, there are reasons why you want to get to a certain earning before you make that transition. I’m assuming and I’m not going to dive into that here, but having that knowledge and having the expertise to walk you through that. It’s crucial and important to make sure you’re making the best decisions you can tax-wise. As you said in the beginning, it’s what you keep. I’d much rather earn $100,000 a year and keep 90% of it than earn $1 million a year and keep 1% of it.

It’s all about how you structure yourself to be able to grow and expand off of that. If your structure at $1 million a year is most likely going to look quite a bit different at $100,000. We can set it up to where you can always build, grow, and expand. The reason these things can be overwhelming is you want to structure your business as if you’re making that million dollars, but if you’re not there yet, it needs to be cost-effective to make sense for your situation as well.

In that way, you can crawl before you walk and walk before you run, but our goal is good or bad profit or loss. How can you put yourself in a better position from a tax standpoint to get startup expenses deducted, organizational expenses, advisory, and marketing? There’s money that goes into starting businesses and we want to help you understand how to capture those.

I’m going to ask you a curveball question that we didn’t prep for. What are some of the mistakes? I’m assuming some people have come to you in your organization and they’ve already got some things set up and probably set up wrong. Have you seen anything that stands out as being a story you’d want to tell as a particular nightmare or a mess that you see people do by not having the right advice?

From a high-level standpoint, I’m going to talk about privacy and anonymity. It’s very common when people come to us. They say, “I don’t want my name listed on anything. I want to make sure I have privacy.” Some of you even reading this have probably heard about the Delawares, Nevadas, and Wyomings of the world that give you additional privacies and protection. For a lot of our higher-end clients, we’ll set them up with a holding company that is strictly used for privacy and protection.

Having a holding company out of Delaware, Nevada, or Wyoming, and then having that holding company that owns all the subsidiary entities that you’re doing business out of, oftentimes, that’s why people will come to us is for that total privacy. I’m located in Utah and let’s say I already have an LLC in place. I want to amend or change it so that the holding company owns my Utah LLC. One of the common things that I see is when I set up an entity, it works like a birth certificate. You can’t go back and change that birth certificate. You can change the ownership so it’s shown and owned by the holding company.

That’s why I say when you’re going to set it up from the beginning, what are your goals and what do you plan on investing in from a real estate standpoint? I’d rather have a holding company own my consulting LLC and have a separate one for my trading, my active real estate, and my passive real estate. It seems like it could be overzealous in the beginning, but that way, you have privacy and protection. Your operating agreement is the most important.

It’s a private document. Your operating agreement is really what’s going to talk to all these other entities to make sure you have the protection and the tax benefits. Whatever you have, we are happy to look at it. We can always make changes, but how much privacy do you truly want? A lot of that is going to be based off of your style of investing, so that changes for everybody.

FLTA S2 E4 | Running A Business

Running A Business: Your operating agreement is really what’s going to talk to all these other entities to make sure you have the protection and tax benefits.


For instance, I am doing some holding and flipping. What would be the differences in how we structure those entities? Give us a couple of key points on why you’d probably want them to be different entities.

A good way to think about it is active income is going to be anything less than twelve months. If you’re coming in and you’re planning on wholesaling or fix and flipping and it’s going to be less than twelve months, that should be taken care of differently than a long-term passive rental. The reason for that is short-term capital gains is considered ordinary income. It’s taxed at the highest rate. You’re anywhere from 10% to 37% depending on your income, whereas your passive investments or your long-term rentals are taxed anywhere from 0% to 20%.

For me, if I have a lot of fix and flips or wholesale activity, I want to take as many deductions as possible there to lower and offset my tax rate where my passive investments or my long-term investments are going to be taxed at a lower rate anyway. I think that’s a big reason for people that they should take into consideration to separate those types of income. The tax rates got a lot to do with why those should be separated.

Let’s walk through what your organization does for somebody who reaches out to you and wants to look into some options as far as corporate structures, building my business, or opportunities to grow with credit or finances. What services do you provide? Walk me through that.

For those of you that are already structured and you’re unsure after reading this, are my articles set up properly? Is my operating agreement structured the way that I want? Do I really have the privacy that I need? Entity structure is the main area that we focus on like holding companies, LLCs, S Corps, single-member, or multi-member. We have registered agents and all 50 states so you don’t have to use your personal address. Entity structure is where it really all begins for us.

Registered agent. For somebody who’s never heard that before, what’s a registered agent? What do they do and why is it important?

Registered agent is a physical address. You can use that address and that number so that your information is not public. We utilize that where you can’t go get a USPS box or a mailing address. It has to be a physical entity address when you’re setting up your LLC or your S Corp. Corporation in general. We have all 50 of those in all 50 states where you can use that address and that phone number as opposed to your address or your personal information. It’s one more way to give yourself some privacy.

They’re the receiver of documents on behalf of the corporation as well and essentially, in a nutshell, any documents. I will throw this out there but God forbid, you get sued. You’re going to sue with the lawsuit if you’re going to get delivered to the corporation for any particular reason. Generally, the register agents are going to be the ones that are going to receive that information on your behalf. You get sued and somebody is not knocking on your door during dinner at 7:00 at night trying to serve you documents because your tenant is an idiot. They want to do something silly. Is that a layer of protection to make sure you have that privacy and you are not getting that interrupted?

For example, we have a client that we’ve been working with for quite a few years that went through a slip-and-fall lawsuit. Because of having the holding company owns the subsidiary where the long-term passive income is coming from, they hired an attorney and they say, “This entity is owned by another holding company. Are you sure this is worth your while for a slip and fall?” You can’t avoid getting sued. It’s a very litigious society. Sue happy world that we’re living in, but you can certainly make it more difficult.

The more successful you become, the larger the target on your back becomes. What happened was they had to go try and serve the subsidiary. They went to the holding company, and in these registered agents, someone was working Monday through Friday 9:00 to 5:00 collecting the mail. They went and served the registered agent and they were there. Our responsibility or the registered agent’s responsibility is to relay that information to the client.

You can't avoid getting sued. It's a very litigious society, but you can certainly make it more difficult. The more successful you become, the larger the target on your back. Click To Tweet

When we called our client, they said, “I am so happy that I have this set up this way.” If not, they probably would’ve come and served me in front of all my other peers at my job. It would’ve been someone coming to their place of work to serve them lawsuit documents. In my opinion, he didn’t do anything wrong but he got sued. At the end of the day, having that privacy is important.

Nobody wants to talk about that. We always dance around and talk about the positive. I’ve been in this business for several years. I haven’t had to sue people and I have been sued. It’s just a practical part of the business. If you’re in this long enough and you are successful, somebody, whether they’re right or wrong, is going to throw stones at you. Having an entity is extremely important. If you get into marriage, you are in love, happy, and you don’t think anything will go wrong. If you get into a partnership, you’re excited and you’re looking at the future. You don’t think anything will go wrong.

If you get into business as an entrepreneur, it’s the same thing. The sky is the limit but the reality is life throws curve balls. It’s important to prepare for these things to have these hard conversations and to have these layers of protection in place so you don’t have these issues become bigger issues than they need to be at the end of the day.

I’ve been in this long enough to see all sides of it. I got sued on a property I never even owned before. I just settled that. It’s important to have these things in place to make it harder for people to do those same kinds of things. It’s also important so you don’t get served at home, at work, or on a family vacation. All that stuff is extremely important so I just wanted to hit on that. You were talking about entity structure as your primary focus.

To add to that, you can’t avoid getting sued. What we try and do is we try and provide layers that make it more difficult for whoever is trying to come after you. It’s one of the areas that we also focus on. We have a team of attorneys that does full estate plans like trusts, wills, living wills, and power of attorney. A takeaway or a piece of homework for everybody, Google how to avoid probate in the state that you’re located in. For me, it would be how to avoid probate in Utah.

Most of you are going to see that a living trust avoids probate. Every state is a little bit different. We have a lot of high-level clients that have their estate plans in place. The trust has ownership of the holding company. The holding company owns the subsidiaries, so that way, their name, address, and information are not listed. That’s not going to be for everybody, especially if you’re just getting started. This is a biased opinion. If you own real estate, I truly believe everyone should have a trust or estate plan because God forbid something happens to you. You don’t want those to go to probate.

FLTA S2 E4 | Running A Business

Running A Business: If you own real estate, you should have a trust or an estate plan because if something happens, you don’t want those to go to probate.


For me, I want to make sure my wife and my daughter are taken care of for the things that I’ve worked so hard to get to. I’m young. A lot of us are young. You’re young. A lot of people reading this are young and it’s worst-case scenario stuff, which isn’t the most exciting point of conversation. It’s better to be prepared and make sure you have the protection and the peace of mind that God forbid something happens to you, your assets and your legacy is taken care of. Entity formation and estate planning are where we put a lot of focus into the asset protection piece.

There are a few more services that you all provide as well. What are those?

We have a business credit development service that helps people build and develop actual business credit to get away from always having to use personal funds and personal credit. To give you the visual, you have your legal name, Social Security number, and credit score. I know you well enough to know you’ve set this up the right way to where you have your business name and your EIN, and you’ve built a separate credit profile for your business. We help you build that credit profile and develop business credit so that you’re separating your personal and your business legally and financially.

That way, you can use business credit. Let the business pay for itself and then pay yourself from there. Helping people build business credit is an area that we’ve been working with for several years. We’re doing over $3 million a month. We’re helping get our clients over $3 million a month in business credit, which obviously is beneficial to grow and scale their business regardless of where you are.

If you haven’t generated any income or you’re already generating a significant amount of income business credit. In several years I’ve been doing this, I’m yet to have a business owner call me back and say, “I wish I didn’t build all this extra business credit. Having additional capital to grow and scale my business sucks.” That is yet to happen in the several years I’ve been doing this. It’s an awesome add-on.

I want to hit on a couple of things with that. Number one is we’re talking about actual business credit where the business gets its own credit profile and not credit card stacking, right?

Yes. Credit card stacking is totally different. It can be beneficial if you need money now. Our goal with our business credit process is to help you apply for and build what’s called a PAYDEX score. It’s similar to your credit profile or your FICO but it’s different in the sense that the range is from 0 to 100. 80 to 85 would be like you have a 750 to 800 credit score.

Our goal is to help you actually reach that 80 to 85. It takes 3 to 4 months to actually do that as long as you follow the process. I want to under-promise and overdeliver where if you can plan on really 6 months to 1 year, it is a long-term growing and scaling business credit profile that you can use for years to come.

I always try to make sure I say this in a way it doesn’t discourage anybody that’s starting out with no money because I started out with no money twice in this business and I become very successful. Access to capital is the number one key to success in the business. What I mean is businesses go through these hills and valleys. They go through this ebb and flow.

To be able to have a line of credit to fall back on or take action on investment property right away and then maybe have your private lender come in behind you on that, and be able to act with urgency and be specific about what you’re doing is extremely important. Access to capital does that. To be able to have great business credit when it comes to maybe you need a truck or something that’s going to help your business get a little further along the line. Having a revolving credit account at Home Depot is going to help you expand your ability to rehab.

There are things that are going to be able to help you grow your business properly and profitably. Access to capital is one of those number one thing. To be able to get your business in line where you can take your name off of those things and fund your properties and do different things is extremely valuable.

You’d rather have the business credit and not need it than vice versa. The time to build credit lines and get your ducks in a row financially oftentimes is when you don’t need it.

The time to build credit lines and the time to get your ducks in a row financially oftentimes is when you don't need it. Click To Tweet

It’s always when you don’t need it. Raise your private money for your private money lenders and build your credit when you don’t need it. When you need it, people are going to be more likely to say no because you need it, and that’s the wrong time to lend it to somebody.

I agree. Even that, I often say, “I don’t care if you have $1 or $1 million in your checking account.” Business 101 preaches OPM, Other People’s Money. If you can use business credit, oftentimes, lower interest rates, let the business pay for itself. You’re keeping yourself so much more organized from a tax stand but the liability is separated. I don’t care if my business credit profile looks like a rollercoaster because that means I’m borrowing money to make money. I don’t want my personal credit to look like a rollercoaster because 1) My wife would kill me and 2) I want to keep my personal and my business separate. Those are important areas to understand.

Anything that I didn’t ask or hit on that we need to hit on while we’re on this conversation?

Last but not least are taxes. It brings it full circle. We have a full team of accountants and CPAs. If you’re planning on structuring yourself the right way and taking advantage of this conversation, it doesn’t mean anything if you don’t have a good team of accountants and CPAs. We do tax preparation and tax filing for personal and business.

If I was to give two pieces of advice from a tax filing standpoint, number one would be having a process to track your expenses. Some of you have bookkeepers. Some of you use apps and QuickBooks. I don’t care if it’s a shoebox full of receipts. That’s not my number one recommendation, but have a process to track your expenses because that’s what adds up to make sure you’re not overpaying at the end of the year. That’s advice number one.

Number two, hire a professional. A lot of accounts and CPAs don’t file their own taxes because it’s good to have an outside perspective looking at your situation. Hiring a tax professional is so important for any industry including accounts and CPAs so that if you were to go through an audit situation, you’re not defending yourself. That creates an emotional response. Have someone that logically can look at your books and make sure you’re taking them.

Hiring a tax professional is so important. Have someone that logically can look at your books and make sure you're taken care of. Click To Tweet

I couldn’t agree more and here’s the thing. I’ve spoken to somebody here who has made every mistake and I’m the first one to talk about my failures in starting a business. It’s a lot easier and less expensive. We think we’re saving money sometimes by not hiring somebody. Somebody do our books once a month or look into our books once a quarter or get advice.

Even get advice once a quarter from a tax planner, we think we’re saving money. In the long run, we’re not. It always costs us a lot more because we end up paying taxes. We’re scrambling at the end of the year trying to do things that we should have done in quarters 1, 2, or 3. I’ve been the first one to go. Sometimes, I’ll say this out loud for a year or two without doing my books because I was busy with my head down in the sand.

The pain to go back and get that cleaned up was just atrocious and a nightmare early on in the business. As an entrepreneur, we’re using somebody who treads for us and leaves the wake of destruction behind us. We need to have the right team in place to make sure that all that destruction is being put in the proper boxes as we go and not after the fact. It’s a lot harder to do after the fact. Take it from me. Get ahead of it. You’re going to sleep better at night and you’re going to have a better business.

One last final closing piece here from a tax standpoint. Make sure your team is helping you understand tax code changes. That’s where I like to put a lot of focus. When COVID hits a few years ago, they say restaurants are impacted. They change business meals from 50% deductible to 100% deductible for 2021 and 2022. That’s a massive change.

They’re now talking about vehicles. This may be in 2021 when 100% depreciation on a vehicle is able to be taken in one year. Tax code changes are meant to impact behavior and a lot of that behavior want to impact the employer. Entrepreneurs create jobs. There are deductions that you’re able to take advantage of because of it, but if you don’t know what those are and if you’re not taking advantage of those changes, you are leaving money on the table. That’s where we want to focus to help you understand that’s not the case.

FLTA S2 E4 | Running A Business

Running A Business: Entrepreneurs create jobs. There are deductions that you’re able to take advantage of because of tax changes. If you don’t know what those are, you are leaving money on the table.


We hit pretty much everything we need to hit, so any advice you want to give someone?

It sounds cliche, but taking action and thinking bigger is always the goal. From an entity structure standpoint, a lot of you probably have your vision boards of the cars, houses, and vacations, but it’s not about where you are now. It’s where you’re going to be in 3, 5, or 10 years. What does your business structure look like?

I challenge each and every one of you to add to your vision board what your structure looks like. How many entities and properties? How are they going to be protected? How are the tax benefits going to work together so you’re not overpaying in taxes? Have someone review it with you before the end of the year.

A lot of our clients, we tell them going into Q4 and saying, “Great job. You got $100,000 that needs to get paid to the IRS or you can invest into your business to make sure that you’re setting yourself up to grow and scale the following year.” Having that visual of where you’re going and not where you are is what I challenge people to think of from a business structure standpoint.

It is time, if you’re reading this, to get your books in line, your corporate entity structure, or whatever it is you need to do. I know Prime Corporate Services is the opportunity to get that done. I’ve got an opportunity to sit in the same room with these gentlemen and everybody involved with Prime Corporate Services and they are extremely good human beings.

They’re looking to do right in my businesses. I always do my research on companies and I can’t find a bad thing out there about them. If you are interested in working with Prime Corporate Services, go to FlipTalk.com/getprime. It’ll direct you over to setting up a call and there are some things that you guys do for people who come through. It’s a free consultation.

Free 45-minute to an-hour consultation, whether you’re brand-new or already have things in place. It’s an overall evaluation of what can be better and how you can make sure you’re protected. It’s a free hour consultation on that link that Don just mentioned.

There are a few other freebies in there as well, which I’m not going to spoil here when you get on your consultation. I’m sure that they’ll share some of that as well. Go to FlipTalk.com/getprime to have that consultation. Find out what Prime can do for you. I guarantee you won’t regret it. Tommy, thank you for being with me now. I appreciate it.

Pleasure as always. Thank you for having me.

Thank you. If you are getting value from this episode, make sure you are liking and sharing everywhere you can and get the word out. If anybody needs to hear this, if you know somebody in your network who is struggling with their business in order, make sure that you introduce them to Prime at FlipTalk.com/getprime. I will talk to you again soon.


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