I’ve read the article, Chris, but still not sure from a tax standpoint whether the S or C is best. I gather from posts and articles, the LLC is designed for long term investment (rentals) primarily, and since I’m involved in flips and L/O (3 years max at this point), I’m ASSUMING the LLC doesn’t fit my investing needs.
I’ve got to set up something and I’m still not convinced the S corp (recommended by my lawyer) is the best since I’m taxed on ALL capital gains…
Any advice would be most appreciated.
Wanted your opinion about adding partners to my LLC - Posted by Jennifer NE
Posted by Jennifer NE on May 19, 2000 at 07:29:58:
Hello everyone. It’s been a while since I’ve been on the board! I wanted to get some advice on working with partners.
In the beginning, Bronchick set up my LLC where my husband and I are both 50/50 member-managers.
Well, things have been going so well that a couple of good friends want to get in on the action with us. We may have lower our profit per deal, but we’ll make it up more in volume and the time it saves me from doing absolutely everything and still working full-time. Plus, it’s nice to have someone local who is as excited as me and to collaborate with
Anyways. I plan on doing all the admin/marketing/accounting/legal/etc… and they would do all the repairs and sales, etc… (We haven’t divided up all the responsibilities yet.)
What would you suggest about doing these deals with my new partners? Add them as members to my existing LLC? (How would I do that? Would I add a clause saying whatever assets/cashflow I had before is mine? What if they wanted to quit RE?) or have them form their own LLCs? --makes accounting and taxes a lot harder.
What do you suggest? I really want them as partners as I think this will really be a win/win.
Jennifer,
I’m no attorney, but I think there’s advice missing here. Yes, I agree you should set up your C Corp, but only for you and yours. My understanding is that you really only need a tight partnership agreement to have a relationship with the other folks. You can have your corp be the partner representing you, but I would not set up a legal entity (other than through a partnership agreement) with outsiders. If everything blows up, your corp will still be yours. It’s great to go in with the attitude that all will work out, but only after you’ve protected yourself against the very high probability that it won’t. Find a good attorney to help…
I would call Bill and pay him for a consultation. The few bucks it would cost could save you tens of thousands. My first thought is to form a new C Corp. Keep your current properties far, far, far away from anyone else, except your wife, of course The greed of money has ruined many a good friendship. And lost many people a lot of money. I’m not saying it’s a bad idea, just don’t plop your current inventory in with an outsider (your friend). As far as taxes are concerned, you can currently file as normal, ignoring the LLC entity since both partners are married to each other. If you bring in an outsider, you will have to file as a partnership anyway, and I remember Bill saying that those tax forms are the hardest to do. C Corp taxes are easy. I did my own this year with Turbo Tax for Business.
OOps, forgot. There is a limit on income for a C corp. I understand that no more than 60% can be passive income. So if you are only renting and doing no flips or rehabs, then ask Bill what entity to use. Limited Partnership??
In your opinion, which is better for flips and lease options…S corp or LLC?
It will be set up with 2 non-married individuals.
My lawyer says S corp…is he right?
I am not an attorney, Just a follower of Bill Bronchick, who is an attorney.
ALL my local professionals, attorneys, and Accountants told me S Corp, and NOT C ! Bill said they would do this. So a year ago, I got his course and educated myself. Understood the pros and cons. Kinda got concerned when local professionals disagreed with my conclusion for a C corp, so I went back and re-checked my information. Ran the numbers. For instance, my company will make 100k in a year (hypothetical)… then worked the tax amount due in a C Corp versus an S corp. It convinced me ! There are also many additional tax write offs in a C corp that are not allowed or fully allowed in an S corp. Donations are handled differently, insurance is handled differently, Corporate officers can have more bennefits, etc.
I also don’t like the “flow through” that the S Corp has regarding taxes. It has bit me in the butt many times with another corp I have.
Last week, I ran into my Real estate Attorney and we discussed Corporations. He admitted to me he really never studied them and that he doesn’t touch tax law and never wants to. I taught him a thing or two! He’s been given some very bad advice from his CPA, which has cost him tens of thousands of dollars. And he IS a C corp !!! I told him to buy Bronchick’s course too ! LOL He thanked me for the advice, and I told him I was $125.oo per hour and the bill would be forthcoming. LOL
Learn it yourself, and you will no longer question your decision. Study both, and take no one’s advice. Only you can choose for your situation.
The greed of money has ruined many a good friendship. And lost many people a lot of money. I’m not saying it’s a bad idea, just don’t plop your current inventory in with an outsider (your friend). As far as taxes are concerned, you can currently file as normal, ignoring the LLC entity since both partners are married to each other. If you bring in an outsider, you will have to file as a partnership anyway, and I remember Bill saying that those tax forms are the hardest to do. C Corp taxes are easy. I did my own this year with Turbo Tax for Business.