partners and taxes without LLC

[Brian Campbell]

I've read every thread in here on LLC's vs umbrella liability insurance. My lawyer (a friend) will set up my LLC, but it will cost over 1K to do so so I am looking for other options.

My longterm girlfriend (12 yrs) and I are going to partner with her brother and sister in law in buying rentals. My girlfriend is buying the first house and they will buy the second. I am worried about the tax implications not being fairly distributed without an LLC.

Can the profits and losses be distributed somehow without a partnership. We might be buying a house very soon (have an offer in) and I am still not sure how to approach this problem. I think eventually we will set up a LLC, but for now how do I solve the tax problem? How would you do this?

[Jon Holdman]

You can make the split whatever you wish. You don't need a lawyer, though one might be useful. I'd really recommend it in a case like this. Otherwise, its really easy for one of you to think the other is screwing you because of the uneven distribution of work. You need to spell out how decisions are made. Who can decide what and when. You need to decide who puts in money, credit, or labor, and how that results in the profits or losses being distributed. You need to lay out how distributions are made. Profits and losses go onto your presonal taxes, regardless of how the partnership distributes the money. So, its possible for both of you to end up owing taxes on profits that are retained by the partnership. The more specifics you can spell out in this agreement, the better off you'll be.