Which Business Organization Is Best?
Okay, I've heard that LLC is the best way to go. Then, I call a company which is a supposed expert at setting up entities and tell them I want set up an LLC. Their counselor assures me that for wholesaling properties, "S-corp" is really the better way to go.
I've heard other conflicting opinions in the past, and now don't know whom to believe. Nevertheless, I would certainly welcome some more information, thoughts and opinions at this time, please.
Well since no-one else seems to want to weigh in here.
It doesn't matter. You're splitting hairs. Pick one and go find a deal. Finding the deal is the only thing that matters in the end.
You seem to be ignoring a very key part of the real estate picture - TAXES.
The entity choice plays a huge part of the tax picture.
If you are wholesaling, Sub S has an advantage becasue you can avoid some self-employment taxes.
If you want to transfer the property to yourself for a residence, an LLC or LP is the entity of choice.
Ignoring the tax implications can be disasterous! :-o
tmaccpa
Santa Rosa, Way back in the 30's I spent a lovely summer up your way. I was employed as a dish washer clean up boy at a lumber camp. when the timber topper fell to his death, I was promoted to this most illustrious job. I spent the weekend learning to climb with the irons and the rope and the strange saw missing one handle. I got $10 a day which was a fortune and returned at the end of the summer a rich man back to Beverly Hills and school. Love that area.
As to entity's the taxes are played going in and out of the entities. How you hold and for what period of time are all variables. When you begin the investment buy and you decide what you are going to do with the property, then make your decision.
California is a pretty straight forward state except for the tax due yearly on a LLC and a LLP. $800 indeed!
Cheers Lucius
This topic has come up quite a bit recently--LLC vs. subchapter S corp. I think that the reason LLCs are recommended over S-corp for holding properties is depreciation. Most investment enterprises do not make a profit after depreciation is taken so there may not be any self-employment tax. The care and feeding of LLCs is less stringent than S corporations also. Furthermore, LLCs place no restrictions on the distribution of profits. This distribution of profits does not need to be in proportion to ownership.
If you are engaging in flipping or other active income activity, the S-corporation may be more favorable since you will not be subject to self-employment taxes on profits. If I were producing active income, I would also want to look at a C-corp as a possible business structure.