LLC or an S-Corp

[William Ruiz]

Good evening BP community!

I recently started doing business as a RE investor and I would like to hear from other investors out there your thoughts about filing taxes as an LLC vs an S-Corp. Taking in consideration that I currently hold a full-time job and I invest part time what would be the best way to save money. Your advise is valuable!

I look forward to hearing back from all of you soon!

Willie

[Rob Beland]

Reading through all of the comments brings up several questions and comments. I am going to assume you will be in business for yourself. The only reason, in my opinion, to incorporate is if you are in business with a partner(s).

As a new investor, what is the financial benefit of incorporating or setting up an LLC?

There isn't one. You can act as a sole proprietor and deduct all of your utility, technology, education expenses...etc...

You are adding more tax returns, attorneys fees, and accounting fees. With an LLC you will also be adding self-employment tax paid towards medicare and social security which will be paid on all net profit of the corporation. This is not the case with an S-Corp by the way as the shareholders can be considered employees and take a token salary.

Less liability with an LLC or an S-Corp? Stop dreaming about this and stop letting people tell you this is true. Your personal assets are "hidden" from the LLC or the S-Corp but everybody knows you can sue anybody at anytime for any reason. If somebody has a valid reason to sue an LLC started up by a new investor they are going to find out who runs it and sue them personally as well.

The bottom line is if you are starting out flipping houses how much liability do you really have? Get a $1M liability policy. If you're a buy and hold investor, get a $1M liability policy on each property you own. Do some quick projections and some math on how much you REALISTICALLY expect to earn (net) your first year in business flipping houses and then figure out how much of that you will spend setting up the LLC. Project it out five years even. If you're still on your own (no partners) it's probably still not worth it financially.

It's a waste of money. Just my two cents @William Ruiz.