How do you protect your business?

[Kyle Bigger]

Hey BP!

I am in the process of reevaluating the legal/tax side of things for my business and I wanted your input! Feel free to bring up any and all concerns you deal within your business and any ideas or suggestions you have when it comes to the tax and legal side of things.

When I first got into real estate I kind of skipped over a lot of the ground work of structuring my company for the best tax advantages and legal protections. Here are a few of the major things I am currently dealing with.

1) I am looking into getting an umbrella for myself personally, but I really don't know what type of umbrella policy to get and what things I need to specifically cover beyond the basic stuff included in most policies. If I just go down to my insurance company and ask for a policy, they'll give me a generic one, and I am not about to spends weeks trying to dissect the intricacies of that policy to get a grasp of what type of scenarios it may or may not cover, and alternatively having an attorney review it in detail could cost a great deal.  Ultimately, I don't just want to get an umbrella and just automatically have the peace of mind that I am covered because I purchased a policy.  I want to make sure I get the right policy - if you guys have any input on this matter that would be great. Perhaps even just talk about your policy, what you have in it and why! 

2) Also any input you guys have in how to effectively run an LLC, so as to minimize liability for the company and your personal self, would be great!

One example I picked up on from someone, in which my attorney agreed with, is to never sign anything that doesn't mention you're signed as a Manager/Member/Representatitive of the company. Apparently, you leave yourself open to people claiming they thought they were doing business with YOU and not the COMPANY, if there is nothing indicating that you're signing on behalf of the company. 

3) What type of licenses/permits are you guys using to operate your companies whether you're a landlord, residential re-modeler, wholesaler, builder, land developer, etc. I was advised a long time ago that in Oregon, you need to have a Developers or General Contractors License in order to flip more than 3 properties per year, if you're doing improvements to the properties. I am trying to get more information on potential permitting and licensing requirements in my state (Oregon), as well as other states we operate in and will operate in within the future.

4) I am considering restructuring so that I can file as an S-Corp. At this point I am not aware of the total saving I can retain by labeling the majority of the profits as dividends, and a fair/modest amount as income. For instance, if I hypothetically made $500,000 in a tax year, and only classified $50,000 as "Income" and $450,000 as "dividends", I am not aware what the self-employment percentage amount I would be avoiding having to pay on the dividends portion, and if that percentage is savings would be for the total $450,000 or a portion of it. If I were to avoid the self-employment tax of 15.3% for $450,000 that would amount to $68,850 dollars in tax savings? But I've also heard that you only save on a portion of the self employment tax, and it's only up to a certain dollar amount. If anyone could clarify this for me that would be great, although I do have an apt with my tax adviser in a week! Which do you prefer and why, LLC or S-Corp?

Thanks in advance!

Best regards,

Kyle B