LLC Questions

[Levar Wilson]

I have a few questions as it relates to LLCs and I am sure that they have been answered countless times here on the forum so I apologize in advance. I do not know what I do not know, so anytime I mention what "I know" I am really making a semi-informed assumption (smiles). I know that salaries and profits of an LLC are taxed according to the self-employment category. Is this still at 13%? I read through some open source articles and the phrase "unless the LLC opts to be taxed as a corporation" surfaced which I immediately thought, "Why would an LLC want to be taxed as a corporation?" Is it true that only salaries (not profits) are taxed for corporations? If this is correct, and since I will be the sole proprietor of the LLC with technically no salary, this should be the route I pursue, correct? What is the maximum amount of operating losses that can be deducted from regular income for an LLC? Does commingling exist in an LLC with a sole proprietor? I really appreciate each of you taking the time and answering my rookie questions. Thank you.

[Kenneth Estes]

Hey Levar,

In general, you don't want to be taxed as a corporation. If you do, you will have to pay tax at the corporate level and also at a personal level (called double taxation). I've a couple of article on my bigger pockets and personal blog on this topic.

If you opt to not be taxed as a corporation, taxes pass through, meaning you're on the hook for 100% of the profits. How much you pay is determined by your personal tax bracket.

I think the easiest thing is to not take a salary (I can't think of a tax benefit from taking a salary).

If you meet all of the requirements to be a real estate professional, you should be able to apply all of your LLC tax losses to your personal income. If you're not a real estate professional, you are only able to apply passive losses to your regular income if you make less than $150,000. If you make less than $100,000, you can claim $25,000.

Never comingle your personal funds and an LLC's. As a sole proprietor, this is very tempting to do, but it might cost you the protection an LLC provides.

Cheers,

Kenny