All Forum Posts by: Jackie F.

@Jackie F.  Most CPA's will offer a free initial consultation.  Its not a bad idea to contact CPA's and attorneys now, even if you don't necessarily need one now. When you do need them, you will have already made the connections. So often, I get calls from people after they have organized their entity and we end up having to untangle a mess that could have been avoided.

@Jackie F. - so sorry I spun your head around.  I was trying to explain instead of confuse you further.  I think my best advice at this point is to make an appointment with a CPA or EA who is very knowledgeable in Real Estate - perhaps even invests themselves - and have this explained to you in more detail.

@Jackie F. We are in two different boats so I'm the last person to advise you!  This is (mostly) passive for me and not the source of family living expenses.  So my conversations with my CPA are all about lowering the tax burden vs. getting regular distributions.  Sorry I can't be of help, I'm no CPA and am the guy that asks questions and then just does what the CPA says.  

Jackie F. So I'm really on board with Linda Weygant in the "it depends" boat. My simple answer is that towards the end of the year I meet with my CPA, we run through everything, and I get a distribution. I don't know if that's the proper term but there's no annual salary paid twice a month or anything like that. That said, I have a single member LLC so it's basically a pass-through from a tax perspective.

It depends on the type of structure you've chosen.

If you are a straight LLC or sole proprietorship, then you just write yourself a check for whatever you want to take. If you are a single member LLC, then everything is reported on your own Schedule C at tax time. If you are a multi-member LLC, then the income, expenses and profits will be reported on a 1065 and a K-1 will be given to you to use on your personal tax return.

If you are an LLC with an S-Corp Election or you have otherwise chosen to be taxed as an S-Corp, then you must pay yourself a reasonable salary complete with payroll withholdings, etc. You can also pay yourself with Shareholder Distributions or Dividends. The S-Corp will file a form 1120-S to report the profits and issue a K-1 to you for your personal tax return.

@Jackie F.,

That's EXACTLY how the law is written. Remember: these laws were written by rich people for their own interests.

When I renew my LLC registration every year, the on-line form allows for entities which are NOT owned by human persons.

Here's the thumb-nail sketch ("sketchy" - get it?) ...

You establish a revocable trust with your lawyer (for example) as the trustee and you as the beneficiary. You do not OWN it. Trusts aren't owned in the traditional sense. The trustee's identity is public knowledge. The identity of the beneficiary is protected. This is your first layer of asset protection.

You establish an S-Corp (or an LLC with the "S"-election). This will be the "operating" company through which the money flows. It is owned by the trust.

You establish an LLC as your first "holding" company. It is owned by the S-Corp and the trust (multi-member - better protection). Rentals are owned by LLCs. Money flows through to the S-Corp.

This is the basis of your business entity structure. You build from here.

Along with the insurance on each entity, this provides a high degree of asset protection. Your personal estate is well isolated from the entities.

Again, this is how rich legislators wrote the law - to protect themselves and their personal possessions / estate from the risks and liabilities incurred by the business entities.

A side benefit is that you are -NOT- self-employed! You make yourself an employee of the S-Corp (Pres / CEO or Manager, for example) and pay yourself using the salary / dividend split to limit your employment taxes (SUTA, FUTA, FICA, worker's comp.). 

Nothing "sketchy" about it. It's how the law is INTENDED to be used.

There are other benefits, but #1: I'm not a financial or legal professional and #2: There's a whole 16 hour, 2-day class to explain the rest that I could hook you up with rather than try to put it all in one forum post.

@Jackie F.,

If you own the LLC personally (you shouldn't), then what Cody says is true. It can be treated as a "disregarded entity".

If you own your business entities properly - i.e., they are owned by each other and are NOT owned by any human person - then that's rather a different scenario. Talk to a well versed tax attorney and tax accountant to learn the specifics.