LLC for Phoenix Arizona ?

Question

Krystian Sosinski · Answer

Not an expert on wholesale. So I will point that out. But here is some information I found as the answer will probably depend on how you run your business. I don't think an LLC is specifically required by law, but it would be probably a best practice.

An LLC is a limited liability company. It is very similar to a partnership or sole proprietorship in that it utilizes pass-through taxation. However, it also offers protection from personal liability for business debts and claims.

Advantages of LLC:

• Easy to set up. Small amount of paperwork and minimal fees for formation.
• Limited protection where owners stand to lose only the money that they've invested in the LLC personally.
• Creditors cannot legally come after an LLC member's house, car, or other personal possessions.
• Higher level of privacy.

Disadvantages of LLC:

• Protections not offered if you personally guarantee a bank loan or a business debt on which the LLC defaults.
• Does not protect against intentional torts. Does not protect against fraudulent, illegal, or reckless behavior that causes harm.
• No protection if you pierce the corporate veil. This is where the owner treats the LLC as an extension of his or her personal affairs, rather than as a separate legal entity. To prevent this, ensure that you:

Act fairly and legally. Do not conceal or misrepresent material facts or the state of your finances to vendors, creditors, or other outsiders.Fund your LLC adequately. Invest enough cash in the business so that your LLC can meet foreseeable expenses and liabilities.Keep LLC and personal business separate. Get a federal employer identification number, open up a business-only checking account, and keep your personal finances out of your LLC accounting books.Create an operating agreement. Having a formal written operating agreement lends credibility to your LLC's separate existence.
• Act fairly and legally. Do not conceal or misrepresent material facts or the state of your finances to vendors, creditors, or other outsiders.
• Fund your LLC adequately. Invest enough cash in the business so that your LLC can meet foreseeable expenses and liabilities.
• Keep LLC and personal business separate. Get a federal employer identification number, open up a business-only checking account, and keep your personal finances out of your LLC accounting books.
• Create an operating agreement. Having a formal written operating agreement lends credibility to your LLC's separate existence.
• Transferring property from own name to LLC may trigger due on sale clause and make the loan balance immediately due.
• Loss of capital gains tax exemption. The capital gain tax exclusion allows you to exclude up to $250,000 (single) or $500,000 (married filing jointly) of capital gain when you sell your primary residence, so long as you’ve lived in and owned your home for at least two of five years. Mostly applies to buy and hold investors.
• Arizona’s homestead exemption laws already protects up to $150,000 of a person’s equity in real estate from attachment, execution or forced sale. Therefore for LLC protections are not as advantageous for first property. A person, or married couple, may only claim one homestead exemption and must reside in the dwelling for which the exemption is claimed. Mostly applies to buy and hold investors.

• Act fairly and legally. Do not conceal or misrepresent material facts or the state of your finances to vendors, creditors, or other outsiders.
• Fund your LLC adequately. Invest enough cash in the business so that your LLC can meet foreseeable expenses and liabilities.
• Keep LLC and personal business separate. Get a federal employer identification number, open up a business-only checking account, and keep your personal finances out of your LLC accounting books.
• Create an operating agreement. Having a formal written operating agreement lends credibility to your LLC's separate existence.

Account Closed · Answer

You are asking for legal advice.

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Brian Ballard · Answer

I am not a CPA so from my experience...

For wholesaling and flipping... an LLC with "S corp" election ( not an actual S corp). Arizona even allows "Series" LLC's which you can have multiple properties inside of it while keeping them in their own corporate veil under one LLC instead of requiring multiples. Under this if you make passive income with one property in less than 12 months it is taxed as short term capital gains and labeled under ordinary income. Then it is your job through deductions and other means to keep your tax bracket low so this is below the 23.8% that is taxed for capital gains ordinarily. Make sure it is set up properly and documentation is flawless, if the corporate veil isn't there, all that is left is you and your assets.

Find a good CPA that is familiar with these laws and real estate investing. Not all CPA's are familiar with real estate laws so be sure to ask them. There is a lot more to it like the structuring the business (your title), how to take dividends from a 401k through your LLC, acquiring EIN numbers, and maximizing your deductions.

You may also want to contact a lawyer about a trust. If anything ever happens, anything that is deeded over to a trust is protected.

Anita Walter · Answer

Ok so your saying its not required to have one to whole sale here in Arizona but to cover your butt its better to have one ? @Dick Rosen

Casey Miles · Answer

Hi Lily,

An LLC is easy enough to setup in AZ. I did mine on my own. Let me know and i can help if you want to do your own.

Happy Wholesaling,

Casey

Dick Rosen · Answer

It's not required by the State of Arizona. I would talk to your tax adviser about this! Any entity will offer some sort of liability protection but your activities may determine different tax advantages from different entities. I hope that was vague enough to pique your interest in calling someone who knows :)

Jeremiah Estrada · Answer

Great question, I would love to know more about this too and whether it is the best one to have other than a S corp or something. I would set up one just because wholesaling can be tricky here in AZ. Never know who will do an assignment or a double close. Either way, you got to protect  your assets and an LLC is a great way to do that. Whether its necessary though, I don't know. Will be following this thread with you.

LLC for Phoenix Arizona ?

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