Use LLC for Real Estate Investments

It is generally best not to have your corporation purchase real estate. If your company is a C corporation, your company will pay tax when the building is sold. In order to get those profits in your hands, you will have to pay yourself a dividend. This dividend is taxed again. So you are paying taxes twice on the gain from the building sale.

If the building generates a tax loss, which many buildings do because of depreciation, this tax loss will offset your corporate income. Corporate income, however, is sometimes taxed at lower rates than individual rates. Therefore, the tax benefit from the building would be less when held in a C corporation.

If the building generates a tax gain, this gain will be taxed as part of corporate profits and taxed again as a dividend when the cash is distributed to the owners. Often, real estate will generate more cash than taxable income. In C corporation form, getting that cash to the owners will involve extra income tax that would not be paid if held individually.

The same principals apply to contributing your rental property to your corporation. You will be taxed twice when you finally sell the property. Any tax benefit provided by the property may be less when corporate rates are less. Taxable income from the property will be taxed twice.

The analysis is different if you have an S corporation rather than a C corporation. However, it is still not a good idea to own real estate in your S corporation. If you change your mind in the future and you want to pull your real estate out of the S corporation, you will immediately subject yourself to tax based on the fair market value of the property. For example, suppose you want to contribute the property to a partnership to develop the property or for other reasons. You will not be able to get the property out of the S Corporation without paying income tax. Additionally, you may not want to subject such a large appreciating asset to potential liabilities that can arise in your corporation.

Buying the building personally is also not a good idea. Your personal assets would then be at risk to satisfy any potential liability that arises from operation of the building. For this reason, many people use a limited liability company to own real estate. You should still have liability insurance. Make sure to discuss liability issues with your attorney.

In addition to liability protection, a limited liability company (LLC) provides maximum flexibility and maximum tax savings for ownership of business or rental real estate.

Tax accountant John Huddleston has a law degree and masters in tax law from the University of Washington School of Law. He has been a guest tax expert on the radio. He advises small businesses in the Seattle Bellevue Kent Everett area on various tax issues. His firm, Huddleston tax accountants, also provides tax preparation service, quickbooks consulting and general accounting and bookkeeping service. Seattle Bellevue tax accountant John Huddleston is a frequent publisher of tax saving ideas.

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Answering the LLC Versus S Corporation Question

New entrepreneurs can wrestle with the question, "limited liability company vs S corporation." But the confusion and hand-wringing is unnecessary

The Answer is Always "LLC"

If someone really, truly has a choice between a limited liability company and an S corporation, or Subchapter S corporation, the business can and should be operated as an LLC.

Here's why: A Subchapter S corporation isn't actually a real corporation. Rather, an S corporation is a tax accounting classification that's available to a variety of entities, including regular corporations, limited liability companies, and several other possibilities, too.

This reality--the fact that an S corporation is really a tax accounting classification--simplifies the decision if someone is trying to choose between an LLC and an S corporation. You can select the limited liability company option in this case. Why? Because you can elect to have the limited liability company treated for tax purposes as an S corporation.

To elect Subchapter S corporation tax accounting treatment, you file a 2553 form with the IRS. Some states (including Pennsylvania and New York) require their own separate state S election.

One quick aside: If you don't make an S election for an LLC, the LLC gets treated as "something else" for income tax purposes. An LLC with more than one owner is a partnership, for example. And a limited liability company with a single member is treated, typically, as a sole proprietorship.

But "LLC vs S Corp" Question May Be Wrong to Ask

An important point needs to be made about the whole "limited liability company vs. S corporation" question, however.

Sometimes, what people are really asking is whether a new business should be formed as a limited liability company or as a regular old-style corporation. In other words, the right question may be "LLC versus corporation."

As mentioned earlier, both LLCs and corporations can make an election to be treated as an S corporation. Accordingly, the decision to form an LLC is totally disconnected from the S corporation election. But there are still reasons to incorporate...

A Good Reason to Incorporate

Probably the best argument for a regular, old-style corporation is that stakeholders (like customers, employees or vendors) expect a corporation rather than a limited liability company.

Sometimes this preference for a corporation flows from a feeling that a business with the name "Acme Incorporated" just seems more solid than a business with the name "Acme LLC."

However a caution is in order here: Many entrepreneurs use a corporation rather than an LLC because they don't know enough about LLCs. The preference for a regular corporation may indicate the entrepreneur lacks sophistication.

Reasons to Choose LLC Formation

Finally, it's important to note that as compared to a regular corporation, LLCs offer up some big benefits.

For example, one big benefit already hinted at concerns the tax flexibility of an LLC. A limited liability company can be treated as a partnership, a sole proprietorship, a regular corporation, or an S corp.

A common tax planning technique with LLCs is to keep things simple in the beginning by operating as, for example, a sole proprietorship. Then, after the business is running along profitably, an S election can be made. This flexibility is unique to a limited liability company.

Another big benefit of the limited liability company concerns the safety of the ownership interest. As a general rule, shares of stock in a corporation can be seized by creditors of the shareholder. In other words, if some shareholder goes bankrupt or gets sued, that shareholder's shares will probably end up in some other person's hands.

In many states, however, member interests in a limited liability company can't be seized. Rather, the best an outside creditor can do is get a judge to order that money the LLC disburses to the LLC member go instead to the creditor. These orders, called "charging orders," mean than a business or investment owned via an LLC is actually much safer in many cases than a business or investment owned via shares in a traditional corporation.

Note: Why the LLC membership interests can't be seized is beyond the scope of this short article, but the rationale is that LLCs should be treated as partnerships and the law can't force people to become partners.

CPA Stephen L. Nelson taught "S Corporation" tax law at Golden Gate University. Nelson also regularly writes about the Limited Liability Company vs S Corporation question and about Subchapter S corporation benefits.

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Forming a Nevada LLC

Many business owners prefer to form a limited liability company or LLC, in Nevada, because the state of Nevada offers the most corporate friendly atmosphere. Nevada is also considered the best domicile state to form a limited liability company, as the laws here are designed to protect the interest of the business companies.

In order to form an LLC in Nevada, business owners need to file articles of organization with the Secretary of State. The articles of organization are similar in nature to the articles of incorporation, which are required to be prepared and signed by the members of the limited liability company. An operating agreement must also be drawn, to govern the operations of the limited liability company. A resident agent is required, along with an attorney, to properly form the LLC.

Many business owners choose to form the LLC in Nevada, even though the state where they are conducting business is different. The reason for such a decision is that they will be able to benefit from the pro-business laws of Nevada. Once a business is incorporated in Nevada, it makes the state of Nevada its domicile. After this, it can register this newly formed LLC in any other state, which will be termed as foreign registration. If the business is sued in its home state, the plaintiff will have to file in the domicile state, to attack the personal assets of the business owners.

Nevada Corporation Code does not hold all directors or employees responsible for their actions, taken on behalf of the corporation, if they are able to prove they believed it was legal. This is known as indemnification and it includes all civil, criminal and administrative acts. Therefore, forming a Nevada LLC provides protection for business owners from lawsuits that may threaten their personal assets.

Nevada LLC provides detailed information on Nevada LLC, Nevada LLC Formation, How to Start an LLC in Nevada, Nevada LLC Forms and more. Nevada LLC is affiliated with Nevada Corporation Advantages [http://www.e-nevadacorporations.com].

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Remarkable Benefits of LLC For Property Owners

Real estate has more than enough sources and venues for endless opportunities especially for property owners. The most preferred and highly regarded income generating means is through rental investments. However, in recent years, most landlords suffer huge losses due to claims and complaints brought to legal actions by tenants and renters. In order to protect your property from such losses, you may discover the many benefits and advantages of Limited Liability Company or LLC.

May property owners are still in the dark in finding out how LLC really works and how it can actually give them the benefits they desire. For instance, submitting or forming a business organization through LLC means becoming entitled to the different benefits of joining a corporation. These include protecting your personal assets from liability-related losses and discrepancies. This is quite a timely remedy for landlords who often experience more losses out of their rental businesses than gaining the extra income their business is intended for. Through LLC, you will no longer suffer loss of personal assets because it is basically covered and immune from incurred payment obligations due to tenant claims and complaints.

The difference however in joining an LLC is that for sole proprietors, the profit is definitely yours, unlike when you are a shareholder in a corporation. Furthermore, you get to manage and operate your rental business the way you want it without interference or adhering to the terms and stringent SOP's of your co-owners or partners. After all, organizing and becoming a member of a corporation is definitely not a piece of cake. You ought to undergo stringent rules and laws regulated by the government to authenticate and certify your business corporation. You will need a lawyer and an attorney's fee is definitely a hefty amount. Securing a license for the corporation is likewise very tedious, time consuming and requires financial allocation as well.

Another remarkable benefit and advantage that Limited Liability Company can offer is the tax breaks and incentives. For instance, one of the greatest drawbacks of having a corporation is the double taxation that you are obliged to comply with. In LLC, you are not eligible for double taxes because you are only required to pay tax intended for single owners of a rental business. Hence, you do not only earn money because you get all the profits for sole proprietorship, but you are also exempted from the grueling responsibility of complying with a double taxation regulation.

Paper works are likewise imminent and burdensome components when it comes to corporation. You need to supply and submit important documentations required to establish and certify your business. Whereas when you only apply for sole proprietorship, you just go to your local building authority, register your business, apply for an LLC and get on with your venture while enjoying its benefits and incentives.

Real property owners with rental investments are truly in the winning edge for this type of business organization. Forming one is shielding yourself from imminent losses that you never want to experience in your real estate ventures at all.

For more information, tricks and tips when it comes to home improvement and real estate as a whole, simply visit Sun City Homes for Sale and Sunridge Canyon Homes for Sale.

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Nevada LLC Operating Agreements

Nevada is considered a haven for business owners who want to create a new corporation or a limited liability company or LLC. The state of Nevada offers complete protection to the officials, agents and members of the LLC, in case of a lawsuit filed against them. In order to operate a limited liability company in Nevada, an operative agreement is necessary. The operating agreement defines the nature of business, general operation and conduct of the affairs, of the company. This agreement also outlines the voting powers of each member and the buy-sell requirements that govern the stand taken by the company in case of members want to sell their interest.

An LLC operating agreement enables the business owners to constitute their financial and professional relationships with their partners and employees. The operating agreement establishes the percentage of ownership of each partner in the LLC and the distribution of profit, along with the responsibilities assigned to each one of them. It is good to have the operating agreement properly documented and signed by all members. This helps in avoiding confusion and misunderstanding, as it specifies the limited liability status clearly. The operating agreement also addresses the line of action in the case of a partner's death, disability or exit from the company.

The main rationale behind creating an operating agreement is that, it enables the business owners to prove their limited personal liability status in a court of law. A formal, written operating agreement lends credibility to the existence of a limited liability company.

Business owners can obtain the services of a professional attorney to draft the operating agreement. They can take a look at sample agreements and model their own operating agreement on those, in accordance with the laws of the state. Software is available to draw an operating agreement.

Nevada LLC provides detailed information on Nevada LLC, Nevada LLC Formation, How to Start an LLC in Nevada, Nevada LLC Forms and more. Nevada LLC is affiliated with Nevada Corporation Advantages [http://www.e-nevadacorporations.com].

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LLC Vs S Corp Vs C Corp

When you start any kind of business, you will have to think about the type of business structure that will be right for you. There are three typical forms of incorporating. You can look for example at an LLC vs S Corp and decide from there how your business will work best. Let's look at the difference between each one and the benefits each one has depending on your business.

The LLC stands for Limited Liability Company and along with closed corporations or C corporations as well as S corporations are the best business structures to use. This is because the company owners are not held liable for company debts as you would get with a partnership or sole proprietorship's.

The difference between the C Corp vs LLC vs S corp is that the C Corporation is taxed double. With the LLC and S Corporation the taxes for the company are known as a pass through and given through the owners on their personal tax returns.

There are only minor differences in the way each type of business runs according to the structure. If you want to have a business that is easy to operate and that offer flexibility then you should choose an LLC. If you want to save of employment taxes, then you should go for the S corporation.

With the S corporation it runs pretty much the same way as a C corporation with the record keeping procedures and various profit sharing rules. There are strict regulations in place for each owner to get his or her share of the company profits according to the capital outlay they invested.

With an LLC the profits can be shared any way the owners see fit and there are no policies and procedures that need to be followed in terms of keeping records and financial data. The main difference with these two business forms comes in with the employment taxes. The owners of an LLC are considered to be self employed and therefore subject to the self employment tax of 15 percent. Carefully weigh the different incorporating structures to see which may be most appropriate for your unique business.

Most business owners find incorporating to be much easier than expected. Though, they commonly find that evaluating LLC vs S Corp vs C Corp is the most important and tough decision for them. Once the choice is made there is more waiting than anything.

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How to Form an LLC Taxed As an S Corporation

If you want to form a Limited Liability Company that will be taxed as an S Corporation, you'll want to know some basic information before you start a business. Many people choose to form their companies as an LLC but with the S Corporation taxation election. Why?

There are two parts involved, taxes and liability advantages. There is a tax advantage in most cases because having an entity taxed as an S corporation allows the owners to save on self-employment taxes (which are 15.3% up to $106,800 of earned income in 2009) on distributions of profits. It is very important to take a reasonable salary when you have either an S corporation or an LLC taxed as an S corporation.

The IRS does not like an owner of an S corporation to take only distributions that are not subject to SE taxes. A reasonable salary is the key. Second, point is that an LLC taxed as an S corporation has an extra layer of liability protection vs. just an S corporation. That is called the "charging order" protection.

These are the two main reasons it may be to your benefit to start a business and form an LLC, yet tax it as an S Corporation. Key point: make sure you file form 2553 federally with the IRS to make the S election in a timely manor (plus some states require a state form to be filed also).

Because the owner of the LLC is self-employed, 15.3% of all earnings up to $106,800 in 2009 are subject to self-employment taxes. For instance, let's say that you earned $60,000 last year in your LLC. You would pay $9,180 in self-employment tax. That money will go toward your Social Security and Medicaid payments. However, there is a way to earn a lucrative salary without taking a hit on all of the profits.

Let's say that you formed an LLC taxed as an S Corporation. You earn the same amount of money but pay yourself a salary of $40,000. You'll pay only $6,120 in self-employment tax. That's a tax savings of $3,060. S Corporations can elect to pay the remaining $20,000 in earnings as a distribution from the company. As an LLC, you can also elect to split the profits in this manner, as long as you follow IRS guidelines. That's where the tax savings comes into play.

If you want to form an LLC but want the tax advantages of an S Corporation, you'll have to get permission from the IRS by filing Form 2553. Timing is crucial, however. This form is due by the 15th day of the third month of the tax year. If you formed your company in May, you'll have until August 15 to file. Miss that deadline, and you will not be able to take advantage of S Corporation tax savings.

Keep in mind that an LLC taxed as an S corporation may not be beneficial to everyone. For example, in California a licensed professional cannot form an LLC so their best option may be a corporation. Because you have three months to file for S Corporation tax status, make it a priority to seek professional assistance before making the final decision. For many small business owners, however, the ease of management that a Limited Liability Company offers combined with the lower taxes of an S Corporation make this decision an easy one to make.

Scott Letourneau is the founder and CEO of Nevada Corporate Planners, Inc. Over the past 10 years NCP has assisted more than 4,500 business owners form LLCs and corporations to get their business off to a fast start! Visit http://www.nvinc.com for insight and essentials in forming an LLC taxed as an S Corporation.

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