Best Business Entity for married couple?

Question

Getting ready to start up a STR using a property inherited by my wife.  We have an LLC which we operate as an S-Corp for our real estate business, but want to keep this venture separate from our brokerage business.  So looking to set up a new LLC, but wondering which is the best election.  We are in NC.  If we both want to be owners, does that require we do a partnership?  I was thinking qualified joint venture, but then read that doesn't apply to an LLC.  I want the legal protection of the LLC, but trying to keep it as simple as possible so that I can do the taxes without having to have a CPA.

David M. · Answer

@Michael Baum

I don't get it.  First you tell the OP that their existing structure is pretty complicated and should consult a CPA.  Then, you send another message forming LLC in any state?  Which do you want the OP to do?

Chris Carrigan · Answer

It could be in community property state, but in NC if its a 1 person LLC it's a disregarded entity, but as soon as you add a second person (spouse or otherwise) it becomes a partnership.

David M. · Answer

@Chris Carrigan

If you already have a LLC elected to be taxed as a S-Corp, why can't you handle another LLC?  Even if you do a multi-member LLC, yes its taxed as a partnership so you do a 1065 partnership return and then do your own returns.

It makes sense to have the STR separately.  So, if you definitely want the limited liability protection of the LLC and willing to pay for the commercial loan, go with a LLC.  You could always have just one of you be the member, but make it manager-managed and have both of you be the managers.  Now its just part of your 1040 tax return.  Regardless of how you operate the STR (so its active or passive income), you'll not want it held by a SCorp.  Apparently, the "corp-like" aspects of the S-Corp get in the way --- its not advisable to hold real property in a Corporation.

Does that help?

Michael Baum · Answer

Hey @Chris Carrigan, you seem to have a fairly complicated business structure. I am surprised to don't have a CPA advising you on this.

Frankly I would get a CPA involved. Once you have an S-Corp in the mix, things can get real murky quick.

I suppose the simplest way would be to create a new LLC with you and your wife as shareholders and put the STR in that entity.

The risk I see is that, even though it is shielded somewhat, everything is linked via you and your wife being sole shareholders. It is still possible, no matter how well protected you are, to pierce the veil.

We have been operating our STR just as a couple for the last 5 years with no issue. If you have the right insurance and enough coverage you should be fine in that regard.

Anyways, I am not a CPA or attorney so there ya go. I would seriously consider getting a CPA involved at this time. We have a much simpler situation and we use a CPA and it has been great. He has saved us more money than we have spent on it.

Another thing to think about is the billions of dollars going to the IRS for 87,000 new agents. I can guarantee that people like you and me and other investors will be targeted for audits. Having a CPA to dot the i's and cross the t's and represent you if (when) things get hairy will be a Godsend IMHO. Anyone who deducts a bunch for cost of business will be targeted.

Luke Carl · Answer

You may find you don’t need such a thing

David M. · Answer

@Chris Carrigan

Come to think of it...  How are you going to use the LLC?  Take Title for the str?  Or, or just host the STR, e.g. airbnb?  What actual LLC operations do both of you have to do?  The AirBnB stuff can be handled by logging into the account?  Even additional people can be added to bank account.  Granted, I've never done any of this so not sure if it truly violates business rules to pierce the corporate veil.  Could this leave you with a single member LLC?  I hate just paying money to others, too.  Especially when they are just "selling" you stuff to give them more paid work.

Chris Carrigan · Answer

I do have a CPA for the S-corp, but all they do is complete the business taxes for me at the end of the year for $500, I'm still doing the day to day book keeping.

Greg O'Brien · Answer

@Chris Carrigan

1) Stay away from S Corp as others said.

2) If you both want to be on the LLC, it will be a tax partnership unless your state followed community property laws

3) STR taxation is quite different then other rentals. There are some good threads here explaining the nuances, pitfalls and more importantly, opportunities

Joshua Lappin · Answer

I would pay the money and get good advice from a RE lawyer and a CPA.  These things can get complicated and if set up wrong, can cost you way more than original set up fees in the long run.

Best Business Entity for married couple?

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