I feel like a total idiot! S.Corp set up by Guru company :( 2600$

[Karen King]

I am new to bigger pockets, been listening to the podcast for last few months. I just went through forums on LLC and I feel like a total idiot. Here it goes. My husband and I attended a Guru investing tax lien seminar in Portland Oregon Aug 2014. We spent 1500$ for the 3 day course. Then on the last day they offered another course a "Ride A Long" in California.... big catch it was 40K. No way we could afford this but man did we explore every option to attend and we were really disappointed when it didn't work out for us. But we did leave with open eyes and a fire for real estate investing.....and it's still burning.

After a couple months the company called us and offered us membership to their website for free if we started a S.Corp C.Corp or LLC with them. So we started a S.Corp at the hefty price of 2600$ (they offered to break it down to monthly payments of 133$/month for like 18 months). We were very very green when it came to business (still are), my husband and I both come from poor Poor Dad families. We both work 50+ hours a week (our WHY is actually see each other during the week.). I am very fortunate for the education we received at the course but now I am worried about the S.Corp. We are approaching the end of the 3rd year (in the course they said you have three years to make money with S.Corp). We have never filed taxes on the S.Corp because we have made zero money.

In August 2015 we had a friend of a friend in distress she wanted nothing to do with her house and was going to give the house back to the bank.  The house was in shambles pretty much a total gut and 10k in debt to mortgage company.  We caught up the mortgage had paperwork drawn up on a 3 year contract with a lawyer and plan to finance the house in September of this year (would have sooner but I had credit issues and husband had tax issues we needed to clear up).  We have been doing all the work ourselves with the help of our awesome neighbor who is a contractor. The home is in a desirable area we got it under contact for 294,000 comps in area are 500,000.  Any advice on what to do with this S.Corp would be greatly appreciated.  

Thanks 

Karen King

[Bret Ehlers]

This is an interesting thread of events Karen.

Not sure how it all fit together with the "S" Corp.  Did you purchase the rehab project using the "S" Corp?

I believe you are missing out on some real tax advantages and $$ now with the "S" Corp since you failed to utilize all of the available deductions for business start up expenses and the pass through advantage to your personal tax return.  This may be the money you need to pay off the tax obligation of your husband. 

Here is a rule Heidi and I learned in our early business experience.  Hire a strategist who is Tax Expert and specializes in business and real estate tax law.  

Based on the info you have shared, it is not too late for you to capitalize on these tax benefits.  For the same money you would pay a W-2 franchise CPA you can hire a true business and real estate tax expert.  Don't wait.  Do it today.  Just the peace of mind will be huge.  We know this from experience. 

You can easily repair your credit and tax issues as well.

To your Business Success.

I'm Glad You Asked!

Bret

[Ned Carey]

@Karen King you said

Did you mean you never made a profit, or do you mean you never did any transactions in the company and no money went into or out of the  company?

In the first situation, if you did business but made no money, you could face a penalty for not filing. If you actually lost money you missed an  opportunity to use that loss to save on your personal tax bill.

In the second situation The fact you did not file may not be an issue. Obviously you need to check with your accountant. 

I  never heard of such a thing. There is a general rule that  if you don't make money in the first three years of a business you risk it being deemed a "Hobby" and the deductions for your losses may disallowed. My understanding is, if it is clear that you are a legitimate business, this is not an issue.  Using a business to deduct expenses of your hobby is Illegal. Having a legitimate business that happens  to be poorly run and looses money is perfectly legal. 

In all of these cases and more you should check with a qualified accountant or CPA.

[Account Closed]

Not much advise on the SCorp, (sounds like some nice advise is coming in there.) 

On your deal in my option you should of simply had the seller deed you the house with a limit Power of Attorney. They where going to lose the house anyway. A three year balloon on a contract would not of been my first choice.

[Derrick Aragon]

@Karen King This is way to vague for anyone to give you any real advice other than what another person already said is go find a cpa. 

You should be able to figure out a way to file all 3 tax years and figure out how to deduct all of the education and different expenses and figure out how the best way to structure and plan for where you are today. Then figure out if there is options of transfer of assets or what is the best bet for today and how to dissolve or use the S corp.  

I might have a contact for you send me a message and I can send it over I am not sure if they will be the best fit for your situation but they might have a another reference they are not a fit.  

[Karen King]

@Derrick Aragon 

@Derrick Aragon So we had no business getting an S.Corp with no idea on what to do with it.  I am willing to hire a CPA I was actually afraid of them saying I had to file bankrupt or something.  My best friends husband is a CPA but works for Nike and has no idea about real estate stuff, so he was not much help.  I would really like to use the S. Corp  as we are nearing completion of our flip but I really do not know where to go from here.  Sorry for being vague just really unfamiliar with this business stuff and trying to educate myself, get our situation straight and move forward.  I would really like to use your contact that would be great, I will contact him/her right away and see where to go from here. Thank you for taking the time to respond.

[Karen King]

@Ned Carey Thank you for your response very much appreciated.  So, we are in year 2  in our first deal, so yes we have made a transaction but no money has went into the company everything we have done to the house has come our of our pockets.   Glad to hear having a business that happens to be poorly run and looses money is perfectly legal!! I was laughing so hard that is exactly how I feel.  Like a horrible business owner.  Trial and Error should be my business name.   I will be checking with a CPA stat!!   Thanks again.  

[Thomas S.]

Don't feel too bad. It is very common for new investors to fall under the myth that they need a LLC or corp. to protect them when investing in real estate. The fact is all that is needed is adequate insurance coverage, Insurance is always the first line of defence and all that would ever be required initially. Fear mongers have made investing in real estate far to expensive and complicated.

[Karen King]

@Bret Ehlers  No, I did not purchase the rehab project with the S.Corp well I guess we might have we did have the attorney draw up the paper work with the business name.  Do you know of a strategist I could get in contact with?  I've been searching on BP threads looking for CPA but I've never heard of a strategist that I could hire.......very interesting.   I am wanting to get this problem addressed right away.  Thanks for the reply much appreciated!