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Updated over 4 years ago on . Most recent reply
Best tax tragedy to move income in an partnership LLC
Hello, First time operating my business in a partnership LLC. I have just made my first real estate deal. I would like to open a whole life insurance policy on myself and put recently earned funds into it. Basically creating a line of credit for my business without banks. This way my funds are working twice, in policy, and available for another quick real estate investment deal. I want to make sure I can do this in a way that is not creating a large taxation problem for myself. Any suggestions on how to make the accounting paper trail be to my best interest?
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Originally posted by @Candice Crawford:
Hello, First time operating my business in a partnership LLC. I have just made my first real estate deal. I would like to open a whole life insurance policy on myself and put recently earned funds into it. Basically creating a line of credit for my business without banks. This way my funds are working twice, in policy, and available for another quick real estate investment deal. I want to make sure I can do this in a way that is not creating a large taxation problem for myself. Any suggestions on how to make the accounting paper trail be to my best interest?
An LLC is a flow-through entity, so your income there will naturally show up on your personal taxes.
When you leverage the cash value in your life insurance policy, its best to utilize a cash value line of credit instead of a policy loan from the insurance company. The former can be structured as a business loan with an assignment against the cash value as your personal guarantee/collateral. When structured this way, the interest on the loan is tax-deductible, so it lowers the taxable income of your future real estate investments. Policy loan interest is not tax-deductible, so you would pay tax on all of your real estate investment income and THEN have to pay off the loan interest. That is not nearly as attractive. The former results in almost 3X the net income after tax.