Here’s how I see to move forward , please stick pins in it.
I earn over the maximum earnings subject to SE tax at my regular job.
I plan on doing some flips as well as some rentals. In my case an S corp does
no make sense because of my earnings. So I go with an LLC…
Single member - don’t plan on putting my wife on it - since she does not work and
any income to her from the llc will be subject to SE tax. LLC income will flow thru to me and
will be subject only to income tax - no SE tax since I am already over the Max earnings as
stated above. No real tax benifit here - just some liability protection. If I’m in it only for
the Tax benefit, might as well do a DBA
Taxed as a corp - Since I really don’t need the income from the LLC - taxing it as a corp
will enable me to keep the money in the LLC to reinvest for other flips. At some point
when I want income I will pay myself a salary (deductible to the LLC and subject to
income tax - No SE tax again)
I am liking No 2. better. Any comments?
Regarding purchasing rentals, If I go with No. 1, it is simpler because I can keep the rentals
in the same LLC and have any depreciation flow to my returns.
If I go with No. 2, I would most likely have to form another LLC (flow thru) to hold the rentals.
Is my thinking cap on right?
I have an appointment with a CPA - based on his answers to the above, I will hire him.
There is no liability protection with what you have described.
When you need money, you take it in the form of corporate, tax deductible benefits programs that are tax free to you. Take a salary only if you need to make quarters for social security.
No need to separate flips from rentals unless you want to use the depreciation expense on personal return or use it to offset flip income.
You are personally responsible for your own actions. Doing something on behalf of an LLC doesn’t absolve you of your personal responsibility. It only binds the LLC to your liability. Someone else has to do all the work and you can take no little to no part in the operation of the LLC if you want to protect your personal assets using an LLC’s limited liability. In addition, the LLC can be liquidated if a judgment exceeds about $11K. You also have no argument for charging order limitations, which would allow a creditor to simply take your place as the LLC member. He can then liquidate the LLC assets.
That is a question for you and your tax planner. I don’t enough about your situation to determine what is best for you.
There are two components to the self employment income tax, social security and medicare. You may be over the income limit for social security taxes, but there is no income limit for medicare taxes.
you also need to evaluate what happens in the event of losses. passive losses are limited to the individual unless you’re a real estate professional. Corps and S-corps treat losses differently.
Then there’s the tax rate: corporations (or LLC’s taxed as C-corps) generally pay a lower tax rate IF you don’t need the cash or plan to leave it in the company to support growth.
Note that “LLC” is not a tax decision. You can choose to tax the LLC as a C-corp, S-corp, partnership or DE, depending on your specific needs and circumstances. LLC is simply a form of ownership that presents less hassle than traditional corporations (minutes, annual meetings, etc)
