Do I still pay taxes if I re-invest my LLC's revenues?

[Paul Roth]

I'm planning on mounting an LLC to start my first real estate investments. My plan is to immediately re-invest all profits generated by the entity, in the name of the LLC, so I pay no taxes on it. I would probably invest in highly liquid assets, something like stocks, until the LLC's got enough to cover the downpayment for another loan, buy another property, and so on. If I understand correctly, that should save me from paying taxes on my real estate revenues.

I'm super new to all this. Is there any flaw in the reasoning?

[Tom V.]

@Todd Dexheimer is correct. The IRS views income earned from a LLC the same as regular income. You have to pay taxes on ALL that profit, it doesn't matter what you intend to do with it later.

What you're thinking of is something that only C-Corp or S-Corp companies can do, and involves dividing the company's profits up into salary, distributions, and retained earnings, which are taxed differently.

Regarding investing in stocks and then pulling your money out of those to buy real estate, the tax man has already thought of that too. Your stock earnings will be subject to short term  or long term capital gains taxes.

It is basically impossible to avoid taxes altogether like you want to do. The only thing you can do is invest in a way that will minimize those taxes as much as possible. Good luck!