“Rich Dad’s Real Estate Advantages: Tax and Legal Secrets of Successful Real Estate Investors” tells me that a LLC has the greatest tax and legal advantages but my CPA/tax attorney tells me that a S corporation is better because a LLC is to complex and the judges cannot understand it. What is your take on this?
double check for yourself. you ultimately must make the decisions. talk with an attorney - you put a slash between cpa and tax attorney - which is he?
LLC compared with a Corp - i can tell you is definitely less complex to manage - Corp’s have much more detail-oriented paperwork.
i’m sure he’s simplifying things a little by saying “judges can’t understand it” - because that statement by itself is ridiculous…
he’s probably saying that judges may rule on an inconsistent basis due to the fact that there isn’t much legal history to refer to. however - the LLC as a business entity is certainly a viable option - if it wasn’t - they wouldn’t be popping up throughout the country in record numbers.
no matter what entity you choose for your business - make sure you do the following:
keep EXCELLENT NOTES.
document ALL MAJOR DECISIONS.
keep EXCELLENT RECORDS of your business.
treat the business as a complete SEPERATE ENTITY from yourself.
do some READING ON THE BASICS OF BUSINESS ENTITIES.
consult an ATTORNEY WHO IS FAMILIAR WITH CORP LAW.
follow THE LAW - if it doesn’t smell right - treat it as rotten and avoid it or study it more, figure it out, consult your attorney and move forward.
he is both a CPA and a tax attorney but not a real estate attorney.
I met with my CPA today and was told an S-Corp is much tighter for legal protection than an LLC. Also, they both come with the same tax advantages - consequences. The reason for his position is that an LLC is sometimes deemed to still be a part of your personal liabilities since everything is flowing through to your name. I honestly do not have a good handle on either or but thought i would share my thoughts.
yeah thats what my CPA and tax attorney told me, except that the judges have a hard time understanding what its saying and there for its easy to interpret lightly.
corporate stock is considered an investment. as such, it is available to satisfy judgement creditors in the event you are sued and lose. so when you rear-end the lady in the Pinto, it explodes, her kids sue you personally and win, they can gain ownership of the company that owns the property.
LLC membership, on the other hand, is considered personal property by statute. As such it is not available to satisfy judgement creditors. Now when they sue they may get a judgement and charging order, but they cannot gain ownership or control of the company that owns the property, putting you in a much better position.
both the corporation and LLC protect you from liabilities arising within the entity, but only the LLC protects the company from your personal liabilities.
In addition, corporations, including S, come with much more hassle: annual meetings, resolutions, etc.
You can have the LLC taxed as a C-corp or S-corp thus gaining the superior asset protection of the LLC along with whatever tax strategy benefits you most.
LLC all the way.