I have been looking to create a business and protect myself via either an LLC or a C-Corporation. I realize there are pros and cons for either, but I am trying to understand the different tax advantages of both.
Here is my situation…I want to start-up a business to flip properties for profit. This business will not be my primary source of income, but rather secondary, additional income. I am trying to find out which business structure better suits my tax needs. Just a little background, my current income from my primary source is $125K+, so I’m not really liking the “pass through” taxation the LLC offers. I am definitely more attracted to the C-Corp tax rates, however, I am a little concerned with the “double taxation” idea.
Another concern is the paperwork involved with the two. It appears that the LLC requires much less paperwork/record keeping than the INC. Is this assumption correct?
Any insight anyone may have would be greatly appreciated! Thanks in advance…
As you probably know, C-Corporations are their own taxing entity therefore any income to the corporation would not be income to you personally. The problem with a C-Corp is that any profits that it has are taxed and if you decide to declare a dividend, the dividends are not expenses of the company and yet are taxed on your return. The secret to not paying taxes is to not have any profit. ;D If you are an employee of the corp, there are expenses that could be paid by the corporation that you would normally pay yourself. These would reduce the amount of profit the corporation has, so it would therefore reduce the corporations taxes. An example might be your internet connection. Also, the corporation might require organizational meetings for its stockholders that would be a business expense. It is irrelevant that your meeting is in Hawaii this time. The travel and lodging costs for the days that you conduct business of the corporation would be an expense of the corporation and would be deductable. Diane Kennedy’s book Loopholes of the Rich can give you some ideas. She is Robert Kyosaki’s (author of Rich Dad / Poor Dad) accountant. I would recommend that you discuss this with your accountant.
Now with all of that being said, I have been told that corporations are not a good vehicle for Real Estate. I do not remember the logic behind the claim probably because I did not fully agree with it at the time. I have heard it recommended that you set up a LLC that is owned by a C-Corp, but that really seems like a lot of trouble. Again, I would recommend that you discuss this with your accountant. He/She should have a lot more information about it than I would.
In case you did not get it from my post, I am not an accountant and I cannot give financial advise.
One thing to add. A corp can keep all the after tax earnings as retained earnings and never pay out dividends. Just keep the cash and keep growing. The tax rate is low on the first 50 g’s I believe. Idea: Set up 100 C corps and see if you can get them all to excede the $50,000 ceiling. I would love to pay some tax on those numbers. Like me once you make a few hundred grand cash you van afford some top notch IRS tax accountant and tax attorney to fight to save taxes. It is a good idea to learn this stuff but do not let it stop you from doing deals.
To avoid the probate and court, I created a Living revocable trust. Now I am getting into real estate (got tired of working as a software engineer); to protect my asset, I am going with Limited Partnership (LP) (My wife and I) , 98%, and General Partner (GP) is a LLC with 2%. It is considered a good combination in Texas.
I want a 2- members LLC; who should be the members of this LLC?