All Forum Posts by: Michael Cooprider

Quote from @William Anderson:

The purpose of an LLC is to protect assets. You will have three assets in one LLC. If you are sued, they can come after all of your properties.

You should think about having an LLC for each. In my state, it costs about $60 one time to form an LLC. You can duplicate your agreement and change the asset page so no need for another attorney.

The Sub S is problematic. You could have formed an LLC to own LLCs and end up at the same place assuming you have claimed the Sub S as a pass-through. If not you pay taxes twice. I went through this years ago forming a Sub S that I did not need. Just because you have it does not mean you need to use it.

Regarding fees. I pay about $950 per LLC each year to my CPA of over 30 years. I have never been audited. Needless to say, I am paying 5 figures each year and it's worth every penny.

William,

I will look into placing the other houses into their own LLCs. Thank you for the advice. I have never been audited either but it comes at a price. I only took home $7,000 after expenses last year. Then take away the tax expense of $1,800 and as you can see not a whole lot of net for my time. Now that being said the houses will be paid off soon and not every year do I have as many costs as last year but it just hurts because everyone seems to have their hand in your pocket. 

Quote from @Lien Vuong:

Getting freebie advice on a very intricate and personal problem on BP is not really going to serve you, any fees you pay to a tax professional is going to be worth the savings they're offering to you. Please do yourself a favor and get a formal consult. 

 Lien, 

That is good advice. I sat down with my CPA today who happens to be a friend and I talked to him in great detail about my tax issues. He is going to continue doing my taxes but is going to reduce his fee as he is a partner at the firm and has the ability to write off some of what he was charging me. I also found out he was already giving me a discount as his firm is very large and demands a high price. He would like to keep doing my taxes and I have brought him several clients so he is going to work with me. I have a much better understanding of the work he does and what I can do to make his job easier to lower my costs even more. I have also dissolved my S Corp and may start it up again if I start flipping houses but for now, I just have a single-member LLC.

Michael

Update,

I thank you all very much for your responses to this post. I now, through much reflection and studying, know more than I ever wanted to know about taxes. I am not sure if I will remain with my current CPA, but I have scheduled a meeting with him to work out the details of my business and my taxes.

I will not be using my S Corp and will be writing the IRS to make my Tax ID number inactive. I called the IRS and asked what I need to do, and they told me to write a letter and stop its activity. This is free and the good news is I can always make it active again if in the future I want to start using it. I will not need to report it on my taxes.

I will listen to Anderson Advisors, but I will NOT be using them for anything other than advice. I understand investing and I am doing quite well in this area of my life. I give financial counseling to others as I am a trained counselor in this area.

As far as my LLC and my houses being under them, this is only a layer of protection, and it is a single-member LLC so no 1165 is needed. I thought it was two members, my wife and I, but it is only a single. I looked it up. Besides I have an umbrella policy and probably do not need it, but it does not hurt or add any additional tax fees.

I am not able to put any more into a retirement account because my 401K is already maxed out to include the catch-up. Plus, I do not want to contribute anymore anyway because I will need the money from the houses to live off of when I leave my job.

My plan is to quit once my house and my rental houses are paid off in two to three years and then use the money that I was paying to mortgage companies and pay myself instead. No more job .

When I do talk with the CPA who has been working on my taxes for the last 8 years I will see if we can work out a better cost and maybe I could do even more to aid in keeping my cost down. He works for a very reputable firm that simply demands a higher price, so I need to find out if this is a good fit for me.

I am going to chalk all this up to a very expensive lesson. Well, not the most expensive lesson I have received in life, but I still do not like spending money on things I could have avoided with a little homework. Don’t do what a CPA has told you just because it sounds good, have them explain it then you go back and do your own research. Then, and only then, move on to what you have heard.

If anyone else has read this far and would like to add to the thread, please do. I would love to know if anyone is in a buy-and-hold real estate situation that uses an S Corp.

Quote from @Sarah Kensinger:

Quote from @Michael Cooprider:

Quote from @Sarah Kensinger:

You need to seriously check into Anderson Advisors for the set up and tax questions you're asking! You couldn't find a better group of people to help you with all the above!

The link for Anderson Advisors did not work. Can you send me the web address? I will check them out.

Sorry I must have typed it wrong.....Anderson Advisors

 Thank you, Sarah, I have scheduled a Strategy Session with them. 

Quote from @Sarah Kensinger:

You need to seriously check into Anderson Advisors for the set up and tax questions you're asking! You couldn't find a better group of people to help you with all the above!

The link for Anderson Advisors did not work. Can you send me the web address? I will check them out.

Quote from @Dan Schwartz:

I never heard of "Sting" tax, so I looked it up. Are you in Massachusetts? If so, holding the properties in an entity disqualifies you from the simple Qualified Joint Venture filing because MA is not a community property state. You have to file your LLC's taxes as a partnership, and CPAs and tax preparers charge a lot to complete those returns. You could see whether $1,800 is fair market price for an 1165 by talking to other CPAs or tax preparers solely about their costs to file 1165s. Sounds like you shopped around a bit and wound up with someone very happy to set up a complex structure for you. If this new CPA/Attorney would do your 1165 partnership return and 1120S corporation return for $2000, what would he or she have charged just to do the 1165 without all of these extra complexity?

I was informed that he was going to do my taxes for less than $600 for the old way I was doing it. I do a lot for my CPA. I set up my business information for him so that all he has to do is enter the numbers that I have already done for him. I am very meticulous about this every year. I wish I would have done more homework about S Corps. I have the feeling that this is going to be about a $2,000 lesson. 

Quote from @Natalie Kolodij:

They advised you to set something up they can charge you more to maintain file...that is not going to be saving you any money. It's actually creating more tax for you. 

Get a second opinion from a Real Estate Tax Strategist. 

What you are saying is what I am seeing online. I believe an S Corp is good for a business that sells widgets on Amazon and has a lot of active money flowing through it but not passive money like me. I did not learn these terms and their tax implications till after I spent the money and counted the cost. I feel at this time that I should just cut my losses, write the IRS to dissolve the S Corp (I found out that this is free and only takes a letter to the IRS), and go back to the old way that I have been doing it for the last 13 years, a simple LLC operation. Whats your thoughts?

Quote from @Jeff Nash:

I just have a few comments and questions:

I guess I am not sure why you are asking some of these questions here since your new CPA should be obligated to explain as you have already paid good money for his or-her services.   

I do not know what your tax bracket is and if another pass thru entity is appropriate, but if you are converting otherwise passive income to active I assume maybe a retirement plan like a self-directed solo 401k is in the mix?  Any discussion around that topic?

I would think a CPA/attorney combination would be very helpful and address most of your needs, assuming the expertise is in the area of real estate, estate planning, and entity selection.  

Jeff,
My CPA seems to be very busy and wants to set up a meeting but he will charge me for his services again. This is a very busy time of year for him, and I think that might be part of the problem.

He did mention putting some money into a self-directed solo 401K but did not ask how much I already had in my TSP/IRA accounts. My income is over $225K a year but I only reported $173K on my taxes. I have a lot of disability that is exempt from taxes. Plus I am debt free except for two rentals and I already have a very large sum in investments and did not ask to put anything into a 401K but maybe that was his plan to try and help with more write-offs?

I have met with him twice. Once with his son who is an accountant (Probably called me to stir up business since I left a message needing help), and once with his Dad who is a CPA/Attorney. I have no doubt that they are good at what they do but I am just uneasy about the whole thing.

Quote from @Dan Schwartz:

What was your rationale for starting down this path?  There are legitimate reasons to structure this way, but every dollar you pay yourself as property manager is subject to 15.3% self-employment tax  if you are turning around and reducing your S Corp income so that you minimize SE taxes, you should have just left it as passive income to begin with   What was your goal here?

 It was not my goal it was my CPA's recommendation. He explained that I would be paying $3000 less in taxes and I said that sounds good to me.

Ok, I have 3 properties under my LLC, Wiregrass Property Investors, LLC (WPI). My wife and I are owners. We make $40,800 a year in rents, before taxes. I also have an umbrella policy to cover my personal assets.

I have just recently filed and paid for an S Corporation to run my property management, Wiregrass Property Management, LLC (WPM). My wife and I own and run this too. Note, for all of you CPAs and Accountants, this was advice from my CPA who is also an attorney in Alabama.

Now, I am just about to pay off all of my houses and all of the rental income will be taxed with very little in the way of write-offs/expenses. I am going to retire in two years and will have no more income under a W2. The structure will be LLC-owned property (WPI) with an S Corp-owned (WPM) rental property for a pass-through entity. Questions/points of interest I have:

1. I am assuming reasonable compensation/income is 10% of the rent and for this, I will pay income taxes on?

2. Will I still get a 20% qualified business deduction on the amount I do not pay the management company, thus saving me on taxable income?

3. Can also put money from my profits into a tax differed account (i.g. a Roth IRA), and will this reduce my taxable income?

4. Will I be subject to excess net passive income tax (I am understanding that this is 25% of my corporate gross. I read that this could me as much as a 21% “Sting” tax.

5. Even though the properties are under the LLC and the management of them is under an S Corp, will my children be charged full capital gains tax if I pass away?

6. Are my long-term rental properties considered passive income and what does this mean to me legally for tax purposes?

7. How much will I have to pay on the dividends paid out the owners? My wife and I only.

I paid $1,800 last year to a CPA who worked for only 20 min to file with just my LLC so I switched to a new CPA/Attorney who is setting all this up. He is telling me it will cost me about $2,000 after the initial cost to do my annual taxes but save me $3000 in paid taxes. That is why I did this in the first place.

I have already paid out $1,000 in legal fees to set up the S Corp, $200 to set up new bank accounts, and will have to pay about $100 a month to use software to run the management company. Not to mention, my time and added headache of the whole thing. Is the juice worth the squeeze in this case? I am a go-getter and do not mind the extra work if I will profit from it but if it is not profitable or not legal, I will not do it.

I know you CPAs do not like to give advice so call it counsel or wisdom from others who have done this or know about these type of tax laws.

Help!