Greeting Everyone. I’ve been reading and learning a lot from this forum.
I’m in the process of looking to buy my first flip all cash.
From my understanding, it’s best to form an LLC with S-corp tax election to save on some self employment tax for flips.
This is going to be a single member LLC. My question is can I have the LLC that is a disregarded entity for the flips that is owned by the LLC with the S-corp tax election as the single member which is owned by me? All of the income is passed through to the S-corp that would distributed dividend and salary to me? The single member LLC (disregarded entity) would be registered in the state of WA in which I plan to invest in and the LLC with the s-corp will be registered in Delaware and will be the single member. And since the Delaware LLC is a member of the WA LLC, I do not need to register the Delaware LLC with WA state as a foreign entity, is this correct? Is this arrangement possible? Is it too complicated for tax purpose?
Also, since both are LLC. How would it be written as the buyer? For example if the LLC has a person as member or manager it would be written out as: ABC LLC, by John Doe, member
And since both are LLC, how would I be writing this offer as?
For tax purpose: Say for example and for simple math, at the beginning of 2014, I buy 4 properties at $70k each. After rehabbing, closing costs, etc, I sell all 4 properties and I got cash back from escrow for $150k each. All 4 properties would total me $600k. I would reinvest to buy more properties and rehabbing them and all of the properties are not for sale yet. By the year end of 2014, I only have about 50k of cash left in the LLC. So for the year 2014, am I being taxed at what I have left in cash of 50k net or I’m being taxed for the 4 properties sold?
an S-corp or LLC taxed as an S-corp only saves self employment tax IF it has enough cashflow to pay you a reasonable salary PLUS a distribution. Most real estate investors will not meet this criteria.
#1. The first thing you need to explain is what you are trying to accomplish. I can’t tell you if it will work if I don’t know what you’re trying to do.
#2. Flips are taxed as ordinary business income in the year they are sold. They are not capital gain. In this scenario if you buy at $70 and sell for $150 you would have taxable income of $80 per house. You would be taxed on that irrespective of how much cash you do or don’t have in the bank. Cash is not the same thing as income.
The whole purpose of the LLC is to buy and sell no rental. That would be in a diff LLC. I’m trying to avoid human name when making an offer that is why I would like to have another LLC with S-corp be the single member of the WA LLC.
I’m trying to understand, so I’m being taxed $80k per house even if I’m reinvesting the 80K to buy another property within the same year. In terms of a business perspective of the LLC, wouldn’t that not be income, would it be an expense because it’s being used to buy another property within the same year?
You can buy/sell in a business name with an assumed name certificate at the county clerk’s office and no LLC needed. If all you want is a name, why have two LLC’s when one accomplishes the same thing?
The purchase of the additional houses is not an expense; it’s inventory. The taxable event is the sale. At the sale, income (gain) must be calculated. To calculate income you subtract your purchase price from the sales price. Thus nothing is expensed until you sell it.
The LLC Operating Agreement and Formation are critical. The Primary Purpose is to Shield your assets from this risky engagement.
The LLC needs to be on title and should be a mutli-member LLC.
Assuming that you own your own home, you have 2 engagement to protect from each other. The minimum for true asset protection is One LLC or each Property, One Managing LLC and One Trust for your Cash.
The Property LLC is non pro-rata between the managing LLC 1% and the Trust 99%
IF the Property goes down in flames, the take that property and 1% of the Cash in the Managing LLC (responsible party)
the 99% is out of reach even if they find you. Form the trust in AK and you make it even more expensive to pursue.
What would it be worth to you if all that could happen and all you would need to do is take a couple of short surveys once week.
(These would be your corp meetings, Minutes and notes.)