HOT! Business Structure Basics

[slim_jim]

I found this table and I thought it would be interesting to take a look at it.

http://www.themoneyalert.com/Corp-Entity-Table.html

Excellent information!

speed ++

 

[Diane Kennedy]

I tried to do a copy/paste of part of the table, but couldn't in the short time I had.

There are some errors on the table. Salary is subject to payroll tax, not self-employment tax. Payroll tax is 7.65%, SE is 15.3%.

LLC may or may not be subject to self-employment tax. It depends on the character of the income.

 

[slim_jim]

thanks for the corrected information. I wonder if the original author would make a correction?

 

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[andviv]

For those new forum members that want to learn more about business structures.... BUMP.

By the way, make sure you read this thread IF one of your new year resolutions is to start your own company.

 

[hatterasguy]

So for building and selling houses, I should form an LLC that is taxed as an S corp.

How about when I start to buy and keep rental properties? Branch them off into another LLC?

When my income goes above $200k a year can I change an S to a C?

 

[hakrjak]

As for how you hold rentals, you'll probably want a master LLC/partnership that will hold other entities that ultimately hold your properties. The number of properties in each entity is dependent on your threshold for risk, the amount of equity in each property, and a host of other factors that you'll have to consider. There's no right or wrong answer.

One thing worth noting, since I have 2 entities myself is that the more entities you have will equal more book keeping costs for you each year. My CPA charges me about $250 per entity to manage all of the books for that entity, handle my annual minutes, keep my binders up to date to keep us compliant, etc.. just in case we're ever called into question by the powers that be. So if I had 10 entities, that would be $2500 per year.

- Hakrjak

 

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[bflbob]

One thing worth noting, since I have 2 entities myself is that the more entities you have will equal more book keeping costs for you each year. My CPA charges me about $250 per entity to manage all of the books for that entity, handle my annual minutes, keep my binders up to date to keep us compliant, etc.. just in case we're ever called into question by the powers that be. So if I had 10 entities, that would be $2500 per year.

- Hakrjak

I wish I could get one that affordably. Mine is $650/year for one entity, just to do the taxes. I do all the accounting myself.

 

[GlobalWealth]

My accountant told me last year (I think) that RE should NOT be held in an S-Corp.

I understand the reason for not holding RE in a C-Corp, but why not an S-Corp??

For asset protection purposes you never want to hold RE in a C or S-corp. It is a bit complicated but essetially if you are sue and a judgement issued against you, you shares in a S or C-corp are at risk. The judgement creditor could take possession of your shares and liquidate the RE to satisfy the judgement. In an LLC (the laws vary greatly by state so not all LLC's are created equal, we use NV, WY, or DE for the best asset protection benefit) the judgement creditors charging order only states that your as your LLC pays distributions to members, the payment must be paid to the creditor to satisfy the judgement. The charging order cannot force a distribution however, nor can it force the sale of an asset, or take possession of your membership interest.

 

[Rem]

I wanted to the bump this thread since i think this is a common topic especially between the New Year and April 15.

I currently run a multi member LLC electing to be taxed as an S Corp for my online business, therefore I do not pay unemployment tax. The one thing I was wondering though was paying estimated quarterly taxes. I have yet to pay in quarterly and just do my taxes yearly and never have had issues or the IRS calling me. Are estimated quarterly taxes only for self employment taxes and that's why I haven't had any issues??

Second big question but I have heard that LLC's can own parts of other LLC's. For instance let's pretend there are 4 members each owning 25% of an LLC. One member decides he/she wants to sell out his share to someone else. I have been told that an LLC can actually buy in and own 25% of that other LLC. So let's say the LLC that bought in was a 2 member 50% each LLC business. That last 25% would then be split among the members of that LLC.

It sounds sort of simple when it comes to structure but I wonder how that would work at tax time. Anyone know what I am talking about? :coco:

 

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[Rem]

Not sure this is correct. If your LLC-taxed-as-an-S-Corp has employees (including yourself), you should be paying FICA and unemployment taxes on all salary paid to employees of the LLC. You can avoid some FICA by paying distributions that are not salary, but this is only over-and-above a reasonable salary.

hmm... ok. You are probably right. Well I need to look into this because I don't consider myself an employee. I just write myself a monthly check based on profits. There are only 2 members and we pay ourselves a bit from the profits each month but don't pay FICA taxes.

You can generally get away with not paying estimated quarterly the first year, but after that, you'll be expected to pay estimated quarterly taxes based either on your previous year's taxable income or your current year's taxable income.

It's been 3 years and I have yet to pay quarterly. I wonder if they know or if they don't know this is happening. I was audited for 2007 this past year and they said I didn't claim some income. I had some checks still coming into the LLC that were under my SS# and not my Business ID number. I gave them proof that in 2007 I did claim them through the LLC and not personally since I chose to be taxed as an S Corp. They said thanks and I was all set.

Yes, an LLC (or corporation) can be an owner in another LLC (or another corporation).

If an LLC (call it LLC 1) with 2 members is 25% owner of another LLC (call it LLC 2), then 25% of LLC 2's income will be distributed to LLC 1. That income will be split up by the members of LLC 1 in proportion to their ownership of LLC 1, and each would be responsible for paying taxes on their portion.

Does that make sense?

This makes complete sense actually. Thanks for breaking it down for me.

 

[Rem]

OK I had to go back and check.

For 2008 I filled out a Schedule E and on line 28 declared the business as a Partnership. Then I filed a Schedule SE for self employment tax. I do these both once per year. Then I filled out the Schedule K-1 (Form 1065)... for my share of the LLC.

I think that is all I do.

Maybe I am toast by the IRS??

 

[Rem]

If you declared as a Partnership and you paid self-employment taxes, you should have the basics covered...

OK good. What about the quarterly filings though? Shouldn't I be doing it quarterly? I remember when I first started it said that I would be notified by the IRS if I needed to file quarterly. I know I shouldn't count on them to let me know but I haven't gotten any notifications. I just don't want to end up getting nailed with some stupid penalty.

 

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[Barry]

Bump

 

[andviv]

This thread is years old... I wonder how much rules have changed since she wrote this...

 

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[integrity]

This thread is years old... I wonder how much rules have changed since she wrote this...

Yeah, I noticed that.

Although I did look into it quite a bit more, and the LLC with S corp taxation turned out to be the best way to go for me, versus the straight S corp route I was originally considering.

Everything mentioned still looks to check out as current.

 

[AF77]

Is there anything wrong with filing/reporting a loss the first three years as an LLC?


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[andviv]

Is there anything wrong with filing/reporting a loss the first three years as an LLC?


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Not an expert, but, didn’t Amazon report losses for more than a decade in a row?

 

[biophase]

Is there anything wrong with filing/reporting a loss the first three years as an LLC?


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It could look like a hobby instead of a business.

 

[mitchellwilliam9]

What are your thoughts on the recommended business structures and taxation strategies outlined here? Do you agree that LLCs with specific tax elections are generally a better choice for small businesses, or do you have a different perspective? Share your experiences and insights on business structures and their impact on taxes and asset protection.

 

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