Umbrella Insurance VS LLC tax question

[Jef A.]

I have my first rental property and have been considering getting umbrella insurance on the property and not setting up an LLC for it. How does this work from a tax perspective? Do the tenants write the checks out to me personally? At the end of the year when i file taxes do i claim it as income in addition to my salary from my full time job or is there a special process i need to follow to claim that rental income? Will i be taxed at a higher rate considering i dont have an LLC? Can i get the same deductions on repairs on the house or office supplies if i dont have an LLC?

I live in GA and the property is in GA.

Thanks in advance

[Ashish Acharya]

Originally posted by @Jef A.:

I have my first rental property and have been considering getting umbrella insurance on the property and not setting up an LLC for it. How does this work from a tax perspective? Do the tenants write the checks out to me personally? At the end of the year when i file taxes do i claim it as income in addition to my salary from my full time job or is there a special process i need to follow to claim that rental income? Will i be taxed at a higher rate considering i dont have an LLC? Can i get the same deductions on repairs on the house or office supplies if i dont have an LLC?

I live in GA and the property is in GA.

Thanks in advance

Jeff , what you are asking is tax 101. 

LLC does not change your tax. LLC is a legal entity, not a tax classification. You will get the same deduction with or without LLC.

If you dont have LLC, your lease agreement will be between you and the tenant. So yes, tenant will pay you. From tax perfective, you will have to claim all the rental income and expense in your personal return under schedule E ( with or without you single member LLC). Yes if you have net income from your rental activity, it gets added to your W-2 income when determining your tax bracket for tax. Normally, depreciation will generate tax loss in the iniital years.

There is no special process, you need to just report the activity in your return. 

You might want to talk to professional. @Eamonn McElroy is in GA too. Talk to him.