Tax Planning and to create an LLC or not?

Question

Hello,

I am currently in escrow for my first Airbnb. Does anyone have a good tax accountant or advisor in the San Diego market I can reach out to? Also, need guidance on whether I should create an LLC or not,,

Nicole Heasley Beitenman · Answer

Go to a local meetup. That's the best place to get referrals to call after 4/15. Like Stephen said, calling any earlier won't be fruitful. I'd even wait til a week or two after the 4/15 deadline just so these folks have some time to breathe.

Fulton Sanchez · Answer

Hi Daniela, you've come to the right place. There are over 20 active CPAs here in Biggerpockets assisting RE investors with their tax planning. Please, make sure to reach out to one with real estate experience, as we are not allowed to promote.

Aaron Zimmerman · Answer

@Daniela Damjanoski - I would recommend looking on the forums for CPAs or using the Biggerpockets CPA finder! There are a lot of great CPAs on here.

Daniela Damjanoski · Answer

Hi Katie,

Thank you so much for such a detailed response. This was extremely helpful and clearly I have a lot to consider. I would love if you can provide references for both an attorney and CPA in San Diego.

Thank you!!!!

Katie Balatbat · Answer

@Daniela Damjanoski

There are several considerations that can go into the analysis of whether you need an LLC or whether a large insurance policy will suffice. Will depend on several factors like the type of property, type of tenants, your risk tolerance, other assets you own, your estate planning, laws where the property is located, etc.  Same goes for number of LLCs and what to fund them with, since bear in mind that CA tends to be more cumbersome and expensive to have LLCs than other states.

California is generally more cumbersome than other states when it comes to taxes and filings. Even if you create a non-CA LLC, if you are managing the business from California, you will likely be deemed to be "doing business" in California and therefore likely subject to CA taxes. California charges a minimum tax of $800 a year per LLC, and more if you have gross receipts in excess of $250k. So, if you create an LLC in another state, you will likely need to register it as a foreign LLC in California. Though, this process will be the same for the other state (if you created a CA LLC you may need to register it as a foreign LLC in the state in which you are doing business/holding property). This means that you will probably need to pay registration and filing fees in at least 2 states if you don’t buy CA property as a CA resident.

Any lawsuits should be limited to the assets of the LLC and not your personal assets (assuming you run the LLC appropriately and the corporate veil is not pierced, some debate as to SMLLC). But, an LLC will not limit you from liability in total. You can still lose your investment in the LLC.   Or, a charging order may be granted.  If you have a loan, you may wish to look into due-on-transfer clauses.

If you're going the umbrella insurance route, perhaps see if it will cover you for several things including just the routine slip and fall (like mold or earthquake). You'll also want to ensure you have a good property manager to look after the upkeep of the property if you are not there to notice anything deteriorating or which may need attention.

Creating an LLC in California could cost you a minimum tax of $800 every year. You would have ongoing filing requirements with the State and would need to keep business records and documentation.  California does not recognize series LLCs.  You'll also want to coordinate with your estate plan, and consider getting an estate plan if you do not yet have one in place.

These are all things you will want to discuss with your attorney and CPA. If you need references for either of them in San Diego, let me know.

*This post does not create an attorney-client or CPA-Client relationship.  The information contained in this post is not to be relied upon.  Readers should seek professional advice.

Stephen Nelson · Answer

Any good accountant will be super busy right now. So asking calling for help right now? A bit like calling an Irish pub on March 17 and asking if you get a last-minute reservation for a big table to celebrate St. Patricks Day with your friends.

Also the LLC thing isn't really a tax deal. It'll be a legal deal. If you're a single investor thinking about a single member LLC (a single owner LLC), the LLC gets ignored for tax accounting purposes. (The tax accountants call it a disregarded entity.)

P.S. I don't any more but I used to teach the "Choice of Entity: S corporation vs LLC" class in the masters in taxation program at Golden Gate University which was at the time and maybe still is the country's largest graduate tax program.

Tax Planning and to create an LLC or not?

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