All Forum Posts by: Katie Balatbat

@Mark Taleon

Is the property in a trust?  If so, what kind of trust?  Is that where you're citing the need to pay wife's family?  Be careful with the tenant, as well, as stated herein.  Also, note that if the liens have been released, usually that's a matter of public record, if someone chooses to go searching for that information.  Do you know if the property was community property and obtained a basis step-up at death of wife?

*This post does not create an attorney-client or CPA-client relationship.  The information contained in this post is not to be relied upon.  Readers are advised to seek professional advice.

@Mohamad Guene

California is generally more cumbersome than other states when it comes to taxes and filings. Even if you create a non-CA LLC, if you are managing the business from California, you will likely be deemed to be "doing business" in California and therefore likely subject to CA taxes. California charges a minimum tax of $800 a year per LLC, and more if you have gross receipts in excess of $250k. So, if you create an LLC in another state, you will likely need to register it as a foreign LLC in California. Though, this process will be the same for the other state (if you created a CA LLC you may need to register it as a foreign LLC in the state in which you are doing business/holding property). This means that you will probably need to pay registration and filing fees in at least 2 states if you don't buy CA property as a CA resident.

Be sure to tell your accountant that you may now need to file non-resident income tax returns in each state where you own property as well. CA taxes residents on worldwide income but may provide a credit for taxes paid to other states.

Most likely the state where the property is located is where lawsuits would be brought if they are something for personal injury like a trip and fall or something of that nature because the “cause of action” arose in that state. So even if you pick a state with stronger protections like WY or NV, the cause of action arose in the state where the tenant fell, so likely that the court where the accident happened would have jurisdiction. Of course, with all things, the answers to all these matters will depend on the circumstances.

California tends to have more laws on the books and requirements and restrictions that it can be a good idea to form a CA LLC for out of state property so that you as a CA resident are covered, and to try to have your contracts fall under the purview of CA courts. It also is helpful to have a California LLC in case you ever sell that property and move into another state so that you do not need to form a new LLC altogether with new operating agreement, just re-register in the new state as a new foreign LLC. Also, the state of formation is likely where internal disputes would be brought among LLC members, so if you and a partner and/or spouse live in CA, you probably want to arbitrate in CA if the two of you had a disagreement. But, that is not always the right answer and you should speak with someone familiar with your personal situation to get advice specific to you.

*This post is informational only and is not to be relied upon. Readers are advised to seek professional advice. This post does not create an attorney-client or CPA-client relationship.

@Lor Fara

Generally, CA residents are taxed on worldwide income, meaning all of your income earned in any state will be taxed in CA if a resident.  But, there is a credit available for taxes paid to other states to deduct from your CA tax bill to somewhat avoid double taxation.  Note that CA tends to have higher tax rates so if CA taxes $10k of rental income sourced in Ohio at a 9% rate, but you only paid, say, 4% to Ohio, maybe you'll get a credit for the 4%, but you're likely still paying the 5% differential to CA.  Generally, you'll also need to follow the state income tax rules of any state where you earned income, and those rules vary state-by-state of course.  Absolutely the first stop in your series of questions would be to ask your tax advisor for advice specific to your situation.  The answer will be dependent on your fact pattern, so a general forum like this may not be able to answer such a broad question.

With regard to the LLC structure, note that CA does not recognize series LLCs, and CA tends to have a broad opinion of what constitutes "doing business" in the state, and therefore, what LLCs need to report with the CA Secretary of State and file appropriate tax returns. While a general rule is that you can purchase property in different states under an LLC formed in another state, you may wish to ensure that the LLC structure and path that you have set-up is appropriate for you and provides the benefits that you are looking for before transferring ownership into those LLCs.

*This post does not create an attorney-client or CPA-client relationship.  The information contained in these posts is not to be relied upon.  Readers are advised to seek professional advice.

@Tim Albright

Couple of other things to add to what others have told you - I'm not sure of your net worth currently, or what you expect it to grow to over the coming years.  But, assuming you have a decent net worth (congrats on all of your successes thus far!), you may also want to consider estate planning and/or gift planning while we're in a high estate tax exemption environment before the sunset in 2026.

As to the income tax planning, most of the time the tax "savings" come by way of depreciation.  That's not to say that there aren't other ways to reduce taxes, and one of any of the several well-qualified CPAs on this forum can assist with their ideas and suggestions for you.

If you need suggestions in the San Diego area, feel free to reach out.

*This post does not create an attorney-client or CPA-Client relationship.  The information contained in this post is not to be relied upon.  Readers are advised to seek professional advice.

@John Campbell

There are several considerations that can go into the analysis of whether you need an LLC or whether a large insurance policy will suffice. Will depend on several factors like the type of property, type of tenants, your risk tolerance, other assets you own, your estate planning, laws where the property is located, etc. Same goes for number of LLCs and what to fund them with, since bear in mind that CA tends to be more cumbersome and expensive to have LLCs than other states.

California is generally more cumbersome than other states when it comes to taxes and filings. Even if you create a non-CA LLC, if you are managing the business from California, you will likely be deemed to be "doing business" in California and therefore likely subject to CA taxes. California charges a minimum tax of $800 a year per LLC, and more if you have gross receipts in excess of $250k. So, if you create an LLC in another state, you will likely need to register it as a foreign LLC in California. Though, this process will be the same for the other state (if you created a CA LLC you may need to register it as a foreign LLC in the state in which you are doing business/holding property). This means that you will probably need to pay registration and filing fees in at least 2 states if you don't buy CA property as a CA resident.

Any lawsuits should be limited to the assets of the LLC and not your personal assets (assuming you run the LLC appropriately and the corporate veil is not pierced, some debate as to SMLLC). But, an LLC will not limit you from liability in total. You can still lose your investment in the LLC. Or, a charging order may be granted. If you have a loan, you may wish to look into due-on-transfer clauses.

If you're going the umbrella insurance route, perhaps see if it will cover you for several things including just the routine slip and fall (like mold or earthquake). You'll also want to ensure you have a good property manager to look after the upkeep of the property if you are not there to notice anything deteriorating or which may need attention.

Creating an LLC in California could cost you a minimum tax of $800 every year. You would have ongoing filing requirements with the State and would need to keep business records and documentation. California does not recognize series LLCs.

You also want to look at whether a pass-through entity helps your bottom line and your taxes. There is a fairly new 20% pass through deduction you may qualify for that could help you, but not everyone qualifies. You should still be able to get this even if the properties are not in an LLC, if you qualify.

These are all things you will want to discuss with your attorney and CPA. If you need references for either of them in San Diego, let me know.

*This post does not create an attorney-client or CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

@Tina Lee

The lengths that people go to avoid the $800 fee still surprises me.  An annoying fee, yes, and eats into cash flow and profits which is why you likely started on this endeavor, but the lengths people go to try to avoid what is, in the end, only $800 seems excessive sometimes.

So, we don't have all of the facts or copies of any documents here, but generally, a trust only governs any assets that it owns.  If the trust mentions the real property, but you never actually transferred ownership of it into the trust, likely the trust terms don't govern it yet.  Did Anderson help you with a deed of some kind to actually transfer ownership of the real property into the trust?

Additionally, did you go over with Anderson how the WY statutory trust is taxed in California? Depending on how much money you're making (which, if you're at a loss, may not be a ton), those trusts can sometimes cause more tax than going the standard LLC route and just paying the $800 in the first place.

I'm not sure from your post if you're talking about income taxes that are owed, or the $800 LLC fee, which is more akin to a franchise fee in the terminology that you're using. Do you mean Franchise Tax Board? If so, you mean income tax? California will generally tax any income earned in its state and sourced to its state. I would suggest pushing further on Anderson on how to fill out the form and what to submit, and for presumably the high fees that you have paid them, they should be able to help further. It may be that you are not exempt from any CA income tax withholdings. You can also consult with your tax preparer.

*This post does not create an attorney-client or CPA-client relationship.  The information contained in this post is not to be relied upon.  Readers are advised to seek professional advice. 

@Armand Gray

Lots of good questions.  The owner of the property really needs to hire an estate planning attorney.  Transfer on death deeds are not widely used, and in fact, the last that I had heard, were only recently extended in terms of availability in California.  Most of the time, they are revocable, the same as a Will or a Trust.  Typically in California, a Will alone is not sufficient to avoid probate - which is a pain, time consuming, and very expensive.  Most of the time these things would pass via a Trust, and a deed would be recorded from the owner's name into the owner's trust, and then ownership would pass by the trustee after death via the trust terms.

*This post does not create an attorney-client or CPA-client relationship.  Readers are advised to seek professional advice.  The information contained in this post is not to be relied upon.

@Jay Moore

There are several considerations that can go into the analysis of whether you need an LLC or whether a large insurance policy will suffice. Will depend on several factors like the type of property, type of tenants, your risk tolerance, other assets you own, your estate planning, laws where the property is located, etc. Same goes for number of LLCs and what to fund them with, since bear in mind that CA tends to be more cumbersome and expensive to have LLCs than other states.

California is generally more cumbersome than other states when it comes to taxes and filings. Even if you create a non-CA LLC, if you are managing the business from California, you will likely be deemed to be "doing business" in California and therefore likely subject to CA taxes. California charges a minimum tax of $800 a year per LLC, and more if you have gross receipts in excess of $250k. So, if you create an LLC in another state, you will likely need to register it as a foreign LLC in California. Though, this process will be the same for the other state (if you created a CA LLC you may need to register it as a foreign LLC in the state in which you are doing business/holding property). This means that you will probably need to pay registration and filing fees in at least 2 states if you don't buy CA property as a CA resident.

Any lawsuits should be limited to the assets of the LLC and not your personal assets (assuming you run the LLC appropriately and the corporate veil is not pierced, some debate as to SMLLC). But, an LLC will not limit you from liability in total. You can still lose your investment in the LLC. Or, a charging order may be granted. If you have a loan, you may wish to look into due-on-transfer clauses.

If you're going the umbrella insurance route, perhaps see if it will cover you for several things including just the routine slip and fall (like mold or earthquake). You'll also want to ensure you have a good property manager to look after the upkeep of the property if you are not there to notice anything deteriorating or which may need attention.

Creating an LLC in California could cost you a minimum tax of $800 every year. You would have ongoing filing requirements with the State and would need to keep business records and documentation. California does not recognize series LLCs.

You also want to look at whether a pass-through entity helps your bottom line and your taxes. There is a fairly new 20% pass through deduction you may qualify for that could help you, but not everyone qualifies. You should still be able to get this even if the properties are not in an LLC, if you qualify.

These are all things you will want to discuss with your attorney and CPA. If you need references for either of them in San Diego, let me know.

*This post does not create an attorney-client or CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

@John Campbell

There are several considerations that can go into the analysis of whether you need an LLC or whether a large insurance policy will suffice. Will depend on several factors like the type of property, type of tenants, your risk tolerance, other assets you own, your estate planning, laws where the property is located, etc. Same goes for number of LLCs and what to fund them with, since bear in mind that CA tends to be more cumbersome and expensive to have LLCs than other states.

California is generally more cumbersome than other states when it comes to taxes and filings. Even if you create a non-CA LLC, if you are managing the business from California, you will likely be deemed to be "doing business" in California and therefore likely subject to CA taxes. California charges a minimum tax of $800 a year per LLC, and more if you have gross receipts in excess of $250k. So, if you create an LLC in another state, you will likely need to register it as a foreign LLC in California.

Any lawsuits should be limited to the assets of the LLC and not your personal assets (assuming you run the LLC appropriately and the corporate veil is not pierced, some debate as to SMLLC). But, an LLC will not limit you from liability in total. You can still lose your investment in the LLC. Or, a charging order may be granted. If you have a loan, you may wish to look into due-on-transfer clauses, as well as whether turning it into a rental requires you to refinance to a non-owner-occupied loan/rate.

If you're going the umbrella insurance route, perhaps see if it will cover you for several things including just the routine slip and fall (like mold or earthquake). You'll also want to ensure you have a good property manager to look after the upkeep of the property if you are not there to notice anything deteriorating or which may need attention.

Creating an LLC in California could cost you a minimum tax of $800 every year. You would have ongoing filing requirements with the State and would need to keep business records and documentation. California does not recognize series LLCs.

You also want to look at whether a pass-through entity helps your bottom line and your taxes. There is a fairly new 20% pass through deduction you may qualify for that could help you, but not everyone qualifies. You should still be able to get this even if the properties are not in an LLC, if you qualify.

These are all things you will want to discuss with your attorney and CPA. If you need references for either of them in San Diego, let me know.

*This post does not create an attorney-client or CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

@Namit Raisurana

Depends on your preferences and situation of course, but seems as though you've set up a fairly complex structure with somewhat pricey ongoing maintenance costs.  It's very hard to remain anonymous in CA, and while a great goal, often comes at the cost of a very cumbersome structure to maintain, explain, and pay for in the meantime.  The Trustee of the trust is typically listed on title to real property, so while that may provide you some anonymity, you have to ask if you really want to track down that person to sign documents related to your real property?  It's putting a lot of faith and trust in a person that you may not know very well, and who you're not in regular contact with as to their life situation.

*This post does not create an attorney-client or CPA-client relationship.  The information contained in this post is not to be relied upon.  Readers are advised to seek professional advice.