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.

Article Source: http://EzineArticles.com/?expert=Stephen_Nelson

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].

Article Source: http://EzineArticles.com/?expert=Marcus_Peterson

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.

Article Source: http://EzineArticles.com/?expert=Rose_B

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.

Article Source: http://EzineArticles.com/?expert=Frank_Rodriguez

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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Taxation on an LLC

Limited Liability Company taxation can be confusing to new owners, but understanding the selection type of the LLC will simplify tax questions. An LLC with one owner can be taxed like a sole proprietorship, C-Corporation, or even a S-Corporation. Ultimately, understanding how a LLC is treated for income tax determines how the entity is taxed. Community property states allow for a husband and wife to be treated as a single member LLC. When an LLC has multiple owners a partnership is the default classification, but still have the right to be a S or C corporation.

One of the major downsides of a Limited Liability Company is payroll and self employment taxes. Single member LLC pays self employment taxes on its profits, which goes on schedule C tax form. That is for active trade business, but a passive LLC (Real Estate Investing) does not pay self employment tax on its profits, but reports its passive income on schedule E.

Multiple member LLC as a partnership engaged in active business pay self employment taxes on their shares of the profit. LLC reports business income on a separate 1065 partnership form, and then the individual calculate their self-employment tax bills on their share of the profits which accompanies their 1040 return.

LLC as a C-corporation are not subject to self employment tax. Profits are subject to corporate income tax and are reported on the LLC's 1120 corporate return. If dividends are distributed they are subject to 15% qualifying dividend tax rate. C-Corporations are subject to payroll taxes on wages paid to members.

LLC as a S-corporation are not subject to neither self employment tax or corporate income tax. Form 1120 needs to be filed and through this return LLC owner's get taxed at their respective corporate profits. The S-corporation must pay reasonable salary which the S-corporations will owe payroll taxes.

Understanding how each entity is taxed will help with the right selection of what the LLC should be; in turn determining how it will be taxed.

This is not advice. Each individual should consult their CPA or Attorney.

For more free information on Taxation on an LLC visit the website.

Article Source: http://EzineArticles.com/?expert=Greg_A_S

The LLC Advantage

Limited Liability Company (LLC) is getting the attention of many small businesses that want to incorporate. The LLC is one of a few options available for individuals wishing to incorporate their business and is gaining ground as one of the most popular form of incorporating. So why are people flocking to the LLC as opposed to options like C Corp?

Liability Advantages

In a LLC, you find the words "limited liability". These words appeal to business owners because one's personal assets are not at risk. In other words, debts against the business will not affect the owner for the debt collection. The owner's home, financial and physical assets would not be subject to the company's liability. In fact, some companies separate their assets among different LLCs to protect their assets. For example, a company can hold equipment in one LLC and financial assets in the other. By doing so, all the assets won't be exposed to the same liability.

Another intriguing advantage is that the transfer of the debt to the limited liability company will not affect the owner, individually, for the debt itself.

Fewer restrictions

There are fewer restrictions for a LLC. For example, a LLC is not limited to a set amount of shareholders such as an S Corp. S Corps only allow up to 100 shareholders.

There's even more flexibility of partnerships since members can create their own contract and allow the ease of management. Moreover, LLCs have fewer restrictions than an S Corp because it can issue varying classes of ownership; S Corps can only issue one stock type.

Tax Advantages

Another advantage of the LLC is that the profits ignore the taxes associated with the business or corporation. Rather, the tax is passed to the members of the LLC directly. Reporting the taxes is as simple as reporting it on your individual tax return. Additionally, you will be able to apply costs or losses associated with the startup cost of the LLC to the individual tax return.

Conversely, a C Corp would be taxed by the government. The remaining profits are then provided to the partners or owner and are subject to tax. As one can see, the profits are taxed twice - which would lower the gains considerably.

Simplicity

Unlike C Corps or S Corps, it's not necessary that a LLC hold annual meetings. Moreover, this entity is not required to even draft meeting minutes.

Another advantage is that a member of a LLC can contribute appreciated property and it would tax free, regardless of how much interest the member has. Whereas in an S Corporation, the contribution of appreciated property would be available if the member has 80% or more controlling interest.

For Non-US citizens or permanent US residents, ownership in an S Corporation would not be an option. However, LLCs do not share in the same restrictions for these individuals.

Today, there are plenty of websites that allows individuals to create a LLC through online vendors. The benefit of this easy access is that it's quick and could save you a lot of money. Typically, lawyers could charge you thousands of dollars to create a LLC. But with online sites, LLCs are easier than ever.

LLCs are not for everyone seeking to incorporate. However, they do provide business owners with tremendous flexibility, simplicity and tax advantages. It's no wonder LLCs are taking the incorporation world by storm.

Michael Russell Your Independent guide to Incorporate [http://incorporate-guide.com/] Article Source: http://EzineArticles.com/?expert=Michael_Russell

Creating an LLC - Limited Liability Company

Creating an LLC or limited liability company is one of the popular forms of business registration in the United States. Creating an LLC is possible to do without having to hire a lawyer although most experts advise that it is always in a company's best interests to get good legal and financial advice before making any major business decision.

Like incorporation creating an LLC is primarily designed to separate the business and personal financial interests of the business owners. Unlike incorporation creating an LLC does not restrict a business from having any management or ownership structure that meets their particular business needs. There are neither requirements for shareholders nor any need to protect their rights or make annual reports to them on business operations or investment strategies. There is also no requirement for an annual general meeting of a limited liability company or to prepare reports and minutes from such a meeting. However it is recommended to maintain meetings and members and managers of the LLC for tax purposes.

Creating an LLC does have a few drawbacks however. They include having to pay the appropriate taxes and levies to register and there are some reporting requirements depending on the state in which the limited liability business is registered.

An LLC is not viewed by the powers that be as a separate entity from the owners of the business and therefore most revenue after expenses have been deducted is usually only taxed once. In a C-corporation this income is viewed to be of direct benefit to the interests and owners of the corporation, the shareholders, and is therefore subject to double taxation, at the corporate and personal levels if dividends are paid.

Creating an LLC does give many business owners a sense of comfort because they are not liable for any of the activities or debts or the responsibilities of the company beyond their ownership stake. If something goes terrible wrong then they will lose their investment in the LLC but they will not lose everything they own personally if they are operating under a limited liability form of business. For many small business owners this in itself is well worth the time, energy and money involved in creating an LLC or Corporation.

David Gass is President of Business Credit Services, Inc., founder of http://www.SmallBusinessConsulting.com and co-developer of the Corporate Manager Software which manages the records of a Corporation or LLC. For a Free Trial of the software visit http://www.corporateforms.net

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How to Form a California LLC

If you're ready to form an LLC in California, the best course of action is to hire a professional who specializes in the formation of Limited Liability Companies and corporations. If you make rookie mistakes, it could have a huge impact on your business. You'll also want to take some steps to develop a plan for establishing business credit.

The first course of action is to complete the necessary paperwork to form your company. There are 7 steps to this process:

1.Choose a company name. You'll need to research the availability of your chosen name. If another company has the name you've chosen, you'll have to modify your choice to create a separate identity. You'll also have to include the words, "Limited Liability Company" or the abbreviation "LLC" in your name.

2.File the necessary paperwork with California's Secretary of State Office. Complete the "Articles of Organization" and submit them.

3.Pay the required fees. Submit the correct fee with your paperwork. Make sure you contact the California Franchise Tax Board and you understand when the $800 franchise tax fee is due and for what entities.

4.Pay the State Taxes. Each entity in California has different tax rates. The LLC taxed as a partnership has the franchise tax fee of $800 per year and a world-wide gross receipts tax which is a table based upon gross revenue. The S corporation is taxed at 1.5% of net profits and the C Corporation at 8.84% of net profits. As you can imagine, selecting the best entity for your business will help you save taxes at both the federal and state level!

5.Create an "Operating Agreement." All LLCs must have an agreed upon Operating Agreement. Conduct an organizational meeting to adopt your agreement. Keep in mind the operating agreement will be different based upon how many members and how the LLC is taxed. You have six options: a single member LLC disregarded, and taxed as an S or C corporation. A multimember LLC taxed as a partnership, and taxed as an S or C corporation.

6.Apply for an Employer Identification Number (EIN). You can apply online at the Internal Revenue Service's website. Make sure you know what you are doing because the IRS will ask very important questions about the EIN number for the new entity and you may answer a few questions that may come back to haunt you a few years down the road, especially when applying for an EIN for an LLC because there are multiple ways it may be taxed. Keep in mind the IRS's federal default rules are as follows: If you have one member if the LLC it will be disregarded for tax purposes. If you have two members it will be taxed as a partnership for tax purposes. In either case you must make the proper selections and elections to have the LLC taxed as an S or C corporation.

7.Open a company bank account. Once you have your EIN, you can open a corporate bank account. If you had a DBA (doing business as) name prior to your new entity and you want to continue that name, make sure you "re-link" the DBA to the new entity not you. Once you have a bank account set up, you should consider applying for a business credit card in the name of the LLC or corporation to help separate your business charges from your personal credit charges to protect your personal revolving debt rations that affect your personal credit score.

8.Obtain the necessary county or state business license. Once you've completed this step, you're officially in business! It is recommended, especially in California to touch base with a local CPA for other requirements when it comes to payroll, hiring outside employees and other state or local tax requirements.

Forming a Limited Liability Company in California isn't difficult but to prevent mistakes that could hurt your business, hire a business consultant who will make the process as seamless as possible and show you how to plan for a successful, lucrative venture.

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 a llc.

Article Source: http://EzineArticles.com/?expert=Scott_Letourneau

Freelancers and Taxes: An LLC's Perspective

When I was laid off from my last "secure" paying job I mentioned to my wife that I wanted to go into business for myself. With two small children at home, a mortgage to pay, and enough other expenses hanging over our heads, this option seemed somewhat crazy. Fortunately, a severance package and unemployment helped to ease my transition to freelance work and I managed to have some additional work lined up to get me started.

One of the first things I did was to set up my business as an LLC: a limited liability corporation. I used the services of LegalZoom to organize my company, saving myself some money over the services of a tax attorney. The advantages of running an LLC include: legal protection from suitors in the event I am sued for work that I have done. They can go after my business assets, but not my personal assets. In addition, the whole way of paying myself has changed: I don't receive a paycheck, but I do make disbursements. These disbursements are not subject to social security taxes, but they are taxed on the federal and state level. Still, with tons of deductions every year [I pay our family's medical bills for starters], our disbursements are fairly low. Livable, but low. Plus, I take advantage of IRA contributions for my wife and me. We are a one income family, something we decided to do even before children arrived on the scene.

The disadvantages of an LLC are few. Start up costs are more and you have to register with the state to keep everything in order. Still, the little extra legwork is worth it and marketing myself as an LLC has been useful especially when I tell employers that I have officially set up myself as a business. Employers seem to appreciate that I made a little extra effort to formally organize myself. In addition, some are happy not to have to furnish 1099 forms for work that I do for them.

Is an LLC right for you? That depends on what you want from one. Contact a tax accountant to gain more information. After nearly four years of business, I have grown to appreciate what an LLC offers and my customers seem to recognize that advantage as well.

Copyright 2006 – For additional information regarding Matt Keegan, The Article Writer, please visit his blog for wit, quips, and freelance writing tips.

Article Source: http://EzineArticles.com

Advantages of Forming an LLC

People are familiar with sole proprietorships, partnerships and corporations. Unknown to some however, there are also other business structures that may be more suited to their requirement. A limited liability company (LLC) is one of those business structures. It is a type all on its own but has the features of both a corporation and a partnership, something many think as one of the advantages of forming an LLC. An LLC, like a corporation, offers its owners limited liability. Unlike a corporation however, it does not need to meet rigid formalities and requirements to maintain its business status. An LLC, like a sole proprietorship or a partnership makes possible a pass-through taxation. The basic advantages of forming an LLC boils down to its financial and taxation benefits over the other forms of businesses.

One of the most important advantages of forming an LLC is the very basis of its name, the limited liability it provides it owners. Its owners, called members, enjoy the liability protection it provides being able to operate as a separate entity. As such, its members will not be held personally liable for the company's debts and other acts and liabilities unless of course the member made a personal guarantee. To illustrate, if a company goes bankrupt and owed money from suppliers, the suppliers may not sue the member on the personal level. This means even if the member has enough personal money to pay for the LLC's debt, he is not legally bound to do so.

Another one, and a great one at that, of the advantages of forming an LLC is its tax feature. Unlike a corporation, an LLC does not need to pay corporate tax. This is due to the pass-through capability of LLCs. The company passes through to its members the profits as well as the losses of the company who in turn will report them in their tax return. However, an LLC may opt to be taxed like a corporation if it prefers it.

Still one of the advantages of forming an LLC is its highly flexible capability of distributing profits to its members. Unlike in a partnership where profit distribution is done fifty-fifty or according to the percentage of ownership or investment, an LLC may opt to distribute profits the way they wan to. It can be according to the work invested on the company by the member or whatever distribution formulas the members may agree to elect.

The abovementioned advantages of forming an LLC are the most recognized benefits a limited liability company has. Aside from those however, there are still a number of other reasons why businessmen opt to form an LLC instead of other forms of business. LLCs provide lesser administrative paperwork and formal recording of meetings as compared to corporations. The forming of an LLC does not need as many requirements than in other entities. It can accommodate as many members as it wants and at the same time may be formed even with a single member only.

There are still many advantages of forming an LLC and you may see all the information you need in the internet. Even forming one may be done online. You may get the services of business advisors to give you an insight if this is indeed what you need.

For more information about an LLC Definition or want to know what is llc, be sure to check out the leading source of information about LLCs: How To LLC.

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Understanding LLC and Its Advantages For the Landlords

If you are an owner of a rental property, either for residential or commercial space, it is wise to form a LLC to deal with your property. It is a given fact that this type of business is very unpredictable. If you will not be aware of the ins and outs of the industry, then you can be in litigation. But if you are a smart investor, you have an insurance ready for cases like that. To ensure a more organize flow of your operation, it is best to put your rental property under a LLC. Though this might not be the ideal option, but it restricts the claims of LLC creditors to the LLC assets as well as protects your home and business from the creditors.

Take a look at some of these cases so you can fully understand the importance of LLC. The limitation on liability is not idea. If you are liable for doing some jobs like removing of snow and you did not do it and unfortunately such removal resulted to an injury, you can probably be involved as the person liable for such job and not simply as the owner. The role of LLC will limit your contractual liability to the point that the contract is only within the LLC and the other party and in not secured by you.

If you categorize your LLC with only one proprietor, you will be free from filing your own tax returns. It can belong under the Schedule C on your personal tax return. However, if your LLC has two proprietors, like husband and wife, you will need to file a separate partnership tax return. If you are married and one of you happens to be the LLC owner, one of you can receive the LLC membership if the initial owner dies. The long and short of it, a multiple-member LLC needs to file its own tax return. As married couples and want to have a more organized procedure, you need to be comfortable the one of your will own the LLC.

To be able to give the limited liability that is usually presented by the LLC entity, you have to claim that LLC is distinct from you. It should have its own bank account. You are not allowed to use any amount, from LLC's bank account, for personal purposes. And the LLC must be the one to engage in any contract and not the owner itself.

Lastly, your mortgage holder may not be in favor about your transfer of ownership of your property to the LLC. Most of these mortgages would require you to pay off the balance before any necessary transaction is done. In mortgages, if you plan to transfer the real estate property into a LLC, it should be considered sold first. But there are cases that you can renegotiate this rule if you put up LLCs for rental properties. There are also other cases that they conduct the transfer hoping that the mortgage holder will not be aware of the transaction. But be careful with the risk involve when you do this. The lender can any time consider the loan due because of the violations made under the due on sale clause. This is in the case if you have successfully transferred the property and was caught by the lender. And once the loan is called due you may either refinance it or must be paid in full. The worse consequence of your actions is that you might end up paying a more expensive loan later on.

With all of these pointers, think it over and decide whether LLC option will work best on your business.

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Benefits of an LLC For Rental Property Owners By Maria Faith Platinum Quality Author

Rental property owners are entrepreneurs. And as entrepreneurs, their primary goal is to maximize profit. One of the most basic steps in maximizing profit is to minimize costs and other liabilities. Recently, the up and coming trend of protecting one's personal assets from the liabilities of a rental business is to set up an LLC over the rental properties. With this LLC, the rental property owner's personal property, like home, car and other assets, are protected from the unpredictable demands of owning rental property. There are also other benefits of an LLC for rental property owners.

Personal property protection

First of, what is an LLC? LLC stands for Limited Liability Company. Without the LLC, business owners are liable for damages and other losses from their business even with their own personal assets.

To illustrate, a sole-proprietor will have to pay for anything and everything that deals with his business out of his own pockets. He can never interpose that his business is bankrupt when he still maintains a personal bank account, his own car and his own home. His personal assets will have to answer for the deficiency. Corporate shareholders do not have this problem because they are protected by the law on corporations that shareholders are only liable for losses out of their corporate shares, hence, their personal property is protected and remains untouched by any corporate liability. The downside of forming a corporation though is that the process itself is meticulous and profits will have to be shared with a handful of shareholders.

LLC combines the ease of being a sole-proprietor with the potential of earning huge profits all by yourself and the protection to personal assets that corporations offer. Personal property protection is the most basic and primary of the benefits of an LLC for rental property owners.

Tax advantages

Another of the benefits of an LLC for rental property owners is the tax advantages. Has even better tax treatment than when in a corporation. A corporate shareholder in essence will have to pay taxes twice. First, when the corporation itself pays its taxes, and second when the shareholder has to pay his own tax from the income derived from the corporation. An LLC is not taxed as a separate entity. The property owner will only have to pay his taxes once, upon his receipt of the income from the rental property. Also, the net loss in the LLC can be declared as a personal deduction for the property owner!

Be a professional by name

Real estate laws require one to spend a certain number of hours in real estate activities to be called as professionals in the real estate industry. But being in an LLC, these requirements are cut in as much as half!

An LLC may be obtained for separate properties

Another of the great benefits of an LLC for rental property owners is that a different or separate LLC may be obtained for each and every property. Why is this beneficial? Because when an investment is sued covered by an LLC, all the properties belonging to that LLC will stand liable for the suit. Covering separate properties with separate LLCs will only make the specific property or investment liable for the claim it is sued for.

These are only the basic benefits of an LLC for rental property owners. And these are already enough to convince any serious business-minded property owner, what would a more detailed study of the benefits do? Start protecting your own personal property and increasing your profits all in the same time. Get an LLC now!

North New England Homes Blog and North New England Homes can offer you a whole deal of information about the real estate market. Whether you want to sell your house, buy a property or rent one, getting all the information that you need will give you a great advantage.

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Single Member LLC - Piercing the Corporate Veil Issues By Richard Chapo Platinum Quality Author

The single member LLC is one of the more popular choices for small businesses. It is often touted as the perfect business entity, but there are definitely some areas of concern that a person forming the entity should know about. One has to do with the issue of piercing the corporate veil.

Why would you form a single member LLC? The answer is found in liability protection. If the business is sued for negligence or unpaid debts, then the individual that owns the entity will not be personally liable. This singe owner is known as a "member". While the LLC provides the asset protection of a corporation, it requires very little paperwork to be done by the member. This combination of factors makes the entity popular with small business and real estate investors.

The single member LLC does come with a few downsides. Tax issues can arise, for instance. There is a far more subtle issue that also exists that is rarely talked about. It has to do with the actual viability of the single member LLC as an asset protection tool. To under the issue, we first have to look at how entities are attacked.

The LLC provides its owners with a shield or veil against liability. Plaintiff attorneys will then seek to "pierce the corporate veil". This is done by showing the LLC is a sham. How does an attorney do that? Well, they take out the rules and regulations of the company and see if the member has been complying with them. This is where things get ugly for many single member limited liability companies.

The rules and regulations of the LLC are found in the Operating Agreement. This document is the equivalent of the bylaws of a corporation. The good news is the typical operating agreement for the LLC does not require the member to do much. The bad news is most single member LLCs have the wrong operating agreements that can result in sham claims being found credible by a judge.

The problem is found in the formation of the LLC. Many people use the inexpensive online services. Those services file the formation documents, but only supply the new owner with a sample operating agreement. These samples are written for LLCs that have multiple members. As such, the agreements call for meetings, voting procedures and a host of other processes. The single member owner cannot comply with these rules for the simple reason that there are not multiple people involved. For instance, how do you have a meeting with only one person? How about a committee? Do you stand in front of a mirror?!

Now imagine how an attorney is going to present this to a judge. "Your honor, this LLC is such a sham it isn't funny. How do we know? This is a single member LLC that has an operating agreement for a different type of business entity! Your honor, we can't even discuss whether the defendant followed the operating agreement because he never bothered to get an applicable one! The LLC must be set aside and the defendant should be found personally liable for this claim."

This is a situation that you really do not want to find yourself in. A judge may very well decide against you. Not only have you not complied with the requirements of your LLC, you don't even have them! That is a disaster in any courtroom.

The single member LLC is a viable and legal entity. That being said, it is absolutely critical that you set it up correctly. The courts will recognize there is opportunity for abuse since there is only one shareholder. As a result, they will look closer at the entity than they will with others. Make sure you have yours in order or you may be found personally liable for its debts.

Richard A. Chapo is with SanDiegoBusinessLawFirm.com where you can learn more about the single member LLC time bomb most LLC owners don't know they are sitting on.

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