All Forum Posts by: Jackie Linne

Hi Jackie,

Yes, Single Member LLC can be taxed on your personal tax return as it is a pass-through taxation entity. SM LLC is generally treated as a disregarded entity, which means that the LLC itself does not have to pay taxes, however state taxes may be different. Profits of the LLC are subject to self-employment taxes.

This does not change the fact that the LLC generally provides a liability shield, protecting your personal assets. That being said, this projection isn't absolute if you don't maintain the formalities of the LLC (including co-mingling of personal/business funds, corporate governance).

Thank you for responding to my inquiry so conside and clearly articulated. 

@Jackie Linne

Pretty well covered. However, I saw mention that "profits of a LLC" are subject to self employment. Actually, any 'active earned income' of a pass-thru entity (which is anything other than a C Corp) is subject to self employment tax. Its the characterization of the income that determines the taxation. A LLC doesn't provide any tax advantages --- with rare exceptions such as electing to be taxed as C Corp, since it was brought up.

Basically, the IRS was nice in not making up another set of forms.  Partnerships (2 or more) file a 1065.  C Corps have their own...  You can just use your 1040.  Most real estate investments will use SchE attached to your 1040.  Primarily, if you flip that will be reported on SchC.

Just to add.. If you did go to a partnership, a 1065 would have to be filed, which spits out a K-1 (think of it like a W2 or 1099) to each partner which then tells you how to report the income on your 1040.  Try to avoid the 1065 since it adds complication for filing since a whole another return has to be prepared before you can do your own before Apr 15 -- but if you have to you have to.

As mentioned, limited liablity protection is a legal matter, not tax matter. You need to operate the LLC properly (mainly don't co-mingle funds and use an alter-ego). This also means most of the "professions" you will interact with, e.g. non-attorneys, have no fiduciary responsibiliy to help you maintain your corporate veil. But of course, consult with a qualified professional or two.

Hope this helps.  Happy to chat. Good luck.

@Tip Mallick - just curious when do you think a C-Corp would be necessary? 

@Jackie Linne - SM LLCs will report directly on your personal return, some states have additional filings and fees you should look into. Then, if you ever add a partner, it may or may not require a seperate 1065 partnership tax return depending on if you live in a community property state or not. 

Hi All,

I'm new to bigger pockets and would like to start investing in out-of-state real estate (buy and hold, LTR). I've been reading some posts here about setting up individual LLCs for each property for asset protection, and saw that some state allow Series LLC but got quite confused with the various posts.

I currently live in Phoenix AZ, and plan to invest in out-of-state properties. AZ does not seem to recognize Series LLC, so I'm wondering if I could set up a Series LLC in either WY or TX, then use it to purchase properties in Ohio or Alabama?

Do I also need a "operating series LLC" set up in WY/TX, and in this case do I need separate bank accounts for each series? Do I also need to create a LLC in the state that the properties are purchased (OH/AL)?

Thank you!

I do have a series llc, but it's not in texas. For that reason, I'm going to skip number two. 

Regarding number one, while it may or may not be legally necessary (not sure), I think it's a good idea to have a separate account for each entity. I always operate under the principal that each entity is its own business. In the case of a successful tort against you, you might regret commingling funds in a single bank account, but I can't see how keeping them consistently separated would ever burn you, even if it is a bit less convenient.  

I have talked with two different attorneys. I got opposing opinions on below and wanted to get what others know (or do) on the subject. Please note that this is for a Texas Series LLC.

1. Imagine you have a Texas Series LLC (parent) with five cells in it (children). Does each of these cell need a separate checking account for a reasonably good asset protection? One attorney said it is a must, whereas other said confidently that it is completely unnecessary. He did not oppose to it, he just thinks only the parent series LLC having one account is enough.

2. I inquired about the possibility of a two-company structure: 

A traditional LLC that is the public face of the activities (collecting rents, paying contractors, etc.) and managing the Series LLC with each property in once cell in it (in this case, Series LLC is serving as a holding role).

Again, one attorney said that would be much better than a standalone LLC and that is recommended approach, and the other said it is waste of time and money since there are some requirements from Texas Real Estate Commission, which is requiring being a licensed broker in the state to operate in the managing LLC.

So, just want to hear what other Texas investors are doing when it comes to series LLCs regarding these issues. 

Thanks

Hi Jackie,

Welcome to the BP Forum!

There is a wealth of information on here. Check out the Events and Meet-ups section to connect with local investors in your area. Do you currently own investment properties? What are you goals this year and long term in real estate?

Hey Jackie, welcome to BiggerPockets! You'll find a lot of members here helpful and informative. I recommend that you start listening to the BiggerPockets podcast starting at the very beginning. Start growing your network, look on Facebook/BiggerPockets for different events, find a mentor doing what you want to do, and get to know the local lenders/brokers. Also, try to attend your local REI networking groups and meetups. Connect with as many real estate investors as you can. Best of luck on your real estate journey!

@Jackie Linne Each LLC is considered a separate legal entity for tax purposes, and therefore, each LLC must have its own EIN. This is true even if the same person or group of people own both LLCs.