Getting the most out of an LLC - Arizona

[Daniel Dishner]

Hello BP Community, 

I'm a relatively new agent in Phoenix, AZ ~8m in. My goal is to really get going on some deals this year and my broker highly recommended I open up a PLLC for myself. So I filed with the state about a week ago. 

Just incase anyone out of AZ is reading this, as far as I understand a PLLC (Professional Limited Liability Company) is the same as any standard LLC, just not all states have the PLLC option. PLLC is an option for anyone who has a license to perform a service (lawyers, real estate agents, ect.)

My question is once my PLLC is formed what do I need to do to get the most out of it? A lot of what i've read online says the IRS will look at some LLC's as a "disregard entity" if they don't follow certain steps and rules. I don't think it can be as easy as just getting my commissions deposited to the business account I will open when the LLC is formed to get a tax break, so what would I need to do exactly to get the most of this and not be looked at as a "disregarded entity"?

Appreciate the help! 

[Linda Weygant]

A single member LLC will always be considered a disregarded entity. I have no idea what "certain steps" anybody would be referring to in order to have them not be a disregarded entity.

Also, there is no difference from a taxation standpoint between a single member LLC and a sole proprietor. The taxes are exactly the same and if you compared the two side by side, there would be absolutely no difference between a sole proprietor and an LLC except that lines C and D are filled in on the schedule C with the entity's name and EIN and the LLC will have an additional expense each year of "Business Licenses and Annual Filing Fees"

There is nothing wrong with a disregarded entity and there's no reason to go to extra lengths to have it file its own tax return, but if you're bound and determined, here are two options.

1. Maintain LLC taxation status and bring in any partner you like and give them 1% ownership. This can be your spouse, your child, your parent or a trusted friend. This will then necessitate that the LLC file its own tax return instead of filing it as a Schedule C on your personal tax return. However, any time you take a distribution, you must also pay out a distribution to your partner so $99.00 to you and $1.00 to your partner every time.

2.  Elect S-Corp Status.  S-Corps must file their own tax returns regardless of the number of shareholders and are never considered a disregarded entity.  Frankly, I'm a little perplexed as to why you didn't choose this option at the outset as the savings in Self Employment tax is likely to be somewhat significant for somebody who has potentially so much profit.  While there are some downsides, the new entrepreneur is usually much more interested in tax savings than they are in retirement plan contribution maximiziation and the like.

For the future, I would recommend that you take real estate advice from your broker and talk to a CPA about taxes.  Your broker may have led you down a path you don't want to be on.