Husband and wife LLC: member-managed vs. manager-managed

[JL C.]

We (husband and wife) are about to acquire rental property and form our first LLC. From an asset protection perspective and a tax perspective, what are the advantages and disadvantages of choosing a member-managed vs. manager-managed? Does it really matter? Also, what are the asset protection/tax advantages and disadvantages of choosing an "at will" (or perpetual) vs. a "term" (specified number of years)? On a separate note, I want to say a big "thank you" to everyone who posts on these forums. I'm new to the site and have learned a lot already. Also, please forgive me if this posted more than once. I tried multiple times on my laptop and it would freeze up every time and apparently did not post. So now I'm attempting to post from my phone. Thank you in advance for any assistance you can provide.

[Natalie Schanne]

JL Crowder - If you're actively member managed, you can deduct any net losses from your real estate against active income (instead of only passive). So Rental depreciation can offset W2 taxes owed.

Set up a business bank account for your LLC, fund it, and don't commingle. This helps protect the veil from being pierced. All rent checks go here. Never buy groceries from this debit card. Document your member profit distributions.

I met an accountant lawyer recently who suggests filing a separate LLC return as a partnership (1065 k1) instead of on a pass through schedule c or e. Then you report your k1 form income on your personal joint return. He said the audit risk is 3x less.

For asset protection, you must make the business look like a business and separate from your personal assets. The less cash/equity the business holds, the less of a target for a lawsuit it is.

Note: People can and will sue you for any reason, including frivolous ones.