Your CPA is not the one that will have to pay the taxes, interest and penalties several years down the road when the tax man gets around to looking at the current return. If you are going to operate as a business and flip the rehabs. Not taking a salary for extended periods can upset the IRS. Rentals are much better off in a limited partnership type of entity. Some states allow LLC to be run that way. Or form a LLP for the rentals. Have the C corp manage and be the general partner.
Ok guys, my CPA thinks LLC’s are too expensive in Illinois. I guess there is a 300 or 350 fee to register each one and 350 per year fee per LLC times my 20 properties. He thinks it’s cost prohibitive. What about grouping them into little clusters. At least that would provide some protection and cost less. He also thinks C corp is too expensive and adds double taxation. I understand this but am still not convinced. He is suggesting S Corp. but I am not seeing how that protects one propertie from the other.
According to Bill Bronchick’s information regarding LLC’s there is a $400 filing fee in Illinois, and a $200 annual fee. To verify these fees call the Secretary of State, LLC division… (217) 524-8008.
If I were you I would consider the purchase of Bronchick’s LLC course and perhaps his course on trusts and corporations.
Making a decision like this based solely on cost and other advice from a CPA alone is not a wise decision in my opinion. It appears to me that your CPA may not be fully versed even in the costs involved, let along the legal ramifications of your decision.
Posted by Kev (NC) on January 23, 1999 at 11:03:45:
I am also a CPA and I agree that forming 20 LLC would be cost prohibative. Illinois is one of the more expensive states.
You have a few options, all of which might be more attractive with land trusts, but talk to your attorney. (This would allow you to move the property to another entity by changing the beneficiary without much trouble.)
An S-Corp would work well for you if you are the only owner and therefore the only person receiving profits.
If you have multiple partners, the LLC is usually better because of the flexibility in allocating profits. You can use a different method for each property if necessary (“special allocations”). With an S-corp, profits must be allocated by using ownership percentage.
I would definitely avoid the C-Corp unless you have a “dealer status” issue and you plan to keep all profits in the corp (ie. no dividends).
My clients are evenly split with S-Corps and LLCs, but LLCs are becoming the more popular entity. I personally us an LLC for my properties - and I only use one LLC with multiple landtrusts.
I like Pat’s idea of a $1 million threshhold per entity.
Posted by James B on January 23, 1999 at 10:15:45:
I have heard that many owners of property use S corporations. As far as I know, an S corp. offers the same protection as a C corp.
I am not absolutely sure on that, so anyone else who knows more please help us out.
Thanks
James B.-Chicago
Posted by JHyre in Ohio on January 24, 1999 at 07:37:13:
Ditto that. Read Bronchick’s material, buy his course. Not only will you be informed- this helps when dealing with “professionals” among other things- but you can create your own Corp/LLC. Most people do not realize just how SIMPLE setting up an LLC or Corp is. If you are well informed and armed with good templates, it is very easy to set up such entities. I DO reccomend using an attorney if OTHER (non-spouse) shareholders or partners are involved. Having business partners greatly adds to what must be in the Articles of Incorproation, etc. No offence to the CPA’s out there- I am an attorney and in process of becoming a CPA- but DO NOT take LEGAL advice from CPA’s. Tax advice, yes. Accounting advice, yes. War stories and wisdom from grizzled veterans- YES! Legal advice- NO! Those guys simply DO NOT have the training and often obtain their legal knowledge via anecdote. Heck, getting good legal advice from attorneys is hard enough!
I’d set up one corp to flip & one LLC to hold- See Bronchick’s articles as to why. His course should pay for itself if it allows you to set up both entities on your own. E-mail him & ask him.
Yea, I am worried about the dealer status. I have only sold 2 in the last 2 month that I would be worried about. But my plan is to keep doing it. My CPA says not to worry about dealer status, but when plan to do 10 more rehabs this year I think I should be worried aobut it. I am thinking to doing a C corp now and putting current sale profits into it. Then just keep it going. Not take dividends or salary. Is that a problem??? I realize when I do take money out, it would be double taxation. But I sure don’t want the Big Uncle choking me with self employment tax on all my rentals.
Posted by James B. on January 23, 1999 at 12:14:48:
If I(actually me and my wife) own just a couple of 5 unit buildings (say, 2 or 3), then would an S corp. be good, in the sense that if a tennant sues my corp. they can’t go after my personal assets outside of the S corp., correct?
However, if they do sue and my insurance on the building that I own in the S corp. is’nt sufficient enough, I could lose all my equity in that building, correct?
Can I put my buildings that I own right now that are just in me and my wife’s name (but still have mortgages on them) in an S corp. In otherwards, will my lender object to me doing this?
Do I even have to notify them that I am doing this?
Do I need an attorney or CPA to do this? Is it complicated?
How many buildings should I put in 1 S corporation?
James B-Chicago
Thanks for your help.
