Posted by JHyre in Ohio on May 15, 2000 at 21:38:29:
Example:
S-Corp buys MH for $2500 and immediately sells it for $1500 down and $7000 note. Has ordinary gain of $6000 and basis in note of $7000. Now sell note to UNRELATED party for $4500…for an ordinary loss of $2500. Distribute $4500 to shareholders, contribute to LLC and buy $7000 note from unrelated party. Net effect: $4500 ordinary gain and capital asset held for investment(note) with basis of $4500.
Compare if use S-corp to create and hold notes, net effect is $6000 ordinary gain and asset- maybe capital, maybe not- with a basis of $7000.
This technique is in the “grey area”- it is not “black-letter” law. I am confidnet that I could argue it with IRS and either win or get a very favorable settlement. The business purpose is to diversify the notes.
Do I need to set up a corporation or LLC before I start trying to do deals on MHs? I’m checking into whether I need a dealer’s license already. Thanks.
Re: Lonnie Question: Business structure for Lonnie deals - Posted by JHyre in Ohio
Posted by JHyre in Ohio on May 14, 2000 at 18:58:16:
Typically, businesses doing Lonnie Deals are best served by using a corporation (“C” or “S”) to do the active buying and selling and an LLC to hold the notes. Your state’s particular laws and your personal situation determine what EXACTLY suits you best…talk to a good tax professional and a good attorney.
Re: Lonnie Question: Business structure for Lonnie deals - Posted by Chris in AL
Posted by Chris in AL on May 13, 2000 at 23:35:25:
Vicki-
I would check the legal information available on this site. I have chosen to operate as a licensed dealer, through a corp so that my other stick built rental properties will not be affected. There are lots of articles listed, available from the front page under “legal corner”. I’m sure once the weekend is over you’ll get more responses, including some from the experts.
John, this may be a dumb question about corps. (either type) and Lonnie deals, but wouldn’t one be subject to self-employment taxes if a corp was formed? Wouldn’t it be better if this income were not earned income? Not with-standing the liability aspect, I would think that it would be better to show this income as passive. This may be totally wrong, but you are the expert here!
Thanks in advance for any insight here,
Tony Cunningham
Could your run through a hypothetical deal using a C corp and an LLC. I understand how a company can buy a MH, but how does the LLC hold the note exactly? Also, would it be worth it if the LLC was created in Nevada?
There are several ways to protect yourself against potential lawsuits when dealing with the public. It’s doubtful that any of them will protect you in all circumstances. You could start with a liability policy, sufficient to cover most legitimate claims.
The one I like best is to set up a corporation or limited-liability company to do business with the public. But, don’t let it accumulate any significant net worth. Then, in the event of a lawsuit, there is little or nothing to get. It goes a long way toward “preventing” lawsuits.
Have a separate entity, such as a family limited partnership, a Roth IRA, or both, which serve as a “safe haven” where the real wealth is being accumulated.
There are various ways you can arrange for your “safe haven” to earn most of the profits. For example, you could have your corporation borrow money from your family limited partnership to buy the home, secure the loan with a first lien on the home, and agree to pay the family limited partnership 18% interest on the money. At the same time, all expenses and a few fringe benefits could be paid from the corporation, thereby reducing its taxable income.
You might even arrange for another entity (under your control or influence) to have an option to buy the property at a price slightly above the loan balance. Under those circumstances, the corporation would never have enough net worth to make it worth while for a litigant or his lawyer to go after it.
There are several ways to protect yourself against potential lawsuits when dealing with the public. It’s doubtful that any of them will protect you in all circumstances.
The one I like best is to set up a corporation or limited-liability company to do business with the public. But, don’t let it accumulate any significant net worth. Then, in the event of a lawsuit, there is little or nothing to get. It goes a long way toward “preventing” lawsuits.
Have a separate entity, such as a family limited partnership, a Roth IRA, or both which serve as a “safe haven” where the real wealth is being accumulated.
There are various ways you can arrange for your “safe haven” to earn most of the profits. For example, you could have your corporation borrow money from your family limited partnership to buy the home, secure the loan with a first lien on the home, and agree to pay the family limited partnership 18% interest on the money. At the same time, all expenses and a few fringe benefits could be paid from the corporation, thereby reducing its taxable income.
You might even arrange for another entity (under your control or influence) to have an option to buy the property at a price slightly above the loan balance. Under those circumstances, the corporation would never have enough net worth to make it worth while for a litigant or his lawyer to go after it.
Re: ? About forming corp. for Lonnie deals - Posted by JHyre in Ohio
Posted by JHyre in Ohio on May 15, 2000 at 21:20:19:
Hi Tony,
How’s it going? Asphalt season is on…still doing Lonnies?
Income from corporations (either type) is not subject to payroll taxes…in other words, you are receiving “non-earned” income. The salary that the corp pays you IS subject to such taxes. That salary must be reasonable or the IRS will attribute a salary to you. So no super-low (with an S-corp) or super-high (with a C-corp) salaries.
Posted by JHyre in Ohio on May 15, 2000 at 21:43:36:
Forming a corp/LLC in NV generally does not save money if you are “doing business” in your home state. Whether you save taxes depends upon the specific laws of your home state…OH is strict on this and has crafted its statutes to get around places like NV and DE. NV companies are also subject to higher rates of audit…because many uninformed taxpayers or tax protesters try to escape federal taxation via NV. Overall, I am not a fan of using NV entities…it is rarely appropriate.