Let Your CPA Do The Worrying

For starters, I am still in the process of researching and developing my business. I've read some articles on LLCs and have decided to form one in the near future. I have not sat down with a CPA and I plan to soon. I would like to get some references from local investors first.

I was in a discussion last night with someone who believes it is important to have a separate LLC for each property especially if you are holding. I've read that suggestion elsewhere and understand that it may be a good way to protect personal assets and other properties should something go wrong.

My issue with that is the routine maintenance of these things. They don't seem as easy peasy as some people make them out to be. The woman told me to let my CPA worry about that.

My question is how many of you pros actually leave all of that up to your CPA? Shouldn't smart investors have a basic understanding and continually educate themselves even in areas that are not their expertise. I would want to understand as much as I could.

Another thing that came up was all the things you can do within an LLC like purchasing a luxury car and it's a write off.

I don't know and maybe this is a silly topic but the more I read on this site it seems the most successful investors try to understand every aspect of their business.

Any feedback is appreciated.

Thanks

Jon Holdman

Real Estate Investor · Wheat Ridge, Colorado

Moderator Pro

12,319 posts
15 awards
95 influence

Aug 09 '10, 01:26 AM

An LLC is really for asset protection. In its simplest form, an LLC has absolutely no effect on your taxes at all. You can choose to have your LLC taxed as a corporation or a S-corporation. Tax strategy is a good topic for a discussion with your CPA.

An LLC can give you asset protection. If your LLC gets sued and loses, and its property set up and operated, then the suit can only target the LLC's assets. Single member LLCs can be pierced, though, allowing the plaintiff to go after other assets.

No, you cannot just buy a luxury car in an LLC and write it off. The IRS will look carefully at that asset and see that its truly a business asset.

OTOH, you can write off mileage for your real estate activities. Doesn't matter what kind of vehicle it is, since the rate's the same. You have to track the mileage and include that in your taxes. To the extent possible, link the mileage to a specific property. Having an LLC or not is irrelevant to your ability to take the mileage deduction.

Jon Holdman, Flying Phoenix LLC

Steve Babiak

Real Estate Investor · Audubon, Pennsylvania

4,267 posts
14 awards
91 influence

Aug 09 '10, 03:31 AM

In the state of PA (such as where you are located), LLCs have to files certain (complicated) documents annually. Certainly your CPA will be capable of doing that, and will charge you for each one that you have to file (at least preparation time).

If you are getting advice from people who have one property per LLC, find out the names of their LLCs and see if that's really what they are doing ... or whether they are just saying that.

Depending on the value of a property (single family vs 100 unit apartment), you may find that you only want one per LLC; or you might find you can tolerate having more than one per LLC, say up to a certain dollar value in total.

Charles Perkins

Landlord · Seattle, Washington

2,986 posts
18 awards
83 influence

Aug 09 '10, 03:55 AM

Originally posted by Elisha Lowe

I was in a discussion last night with someone who believes it is important to have a separate LLC for each property especially if you are holding. I've read that suggestion elsewhere and understand that it may be a good way to protect personal assets and other properties should something go wrong.

Setting up multiple LLCs can be important for some investors. The main purpose for this is separating liability. If something happens to one property it won't effect your personal property or other investment property.

My issue with that is the routine maintenance of these things. They don't seem as easy peasy as some people make them out to be. The woman told me to let my CPA worry about that.

My question is how many of you pros actually leave all of that up to your CPA? Shouldn't smart investors have a basic understanding and continually educate themselves even in areas that are not their expertise. I would want to understand as much as I could.

Another thing that came up was all the things you can do within an LLC like purchasing a luxury car and it's a write off.

I always advocate that clients understand at least the basics. Its important to know enough at least to make good decisions.

Elisha Lowe

Homeowner · Philadelphia, Pennsylvania

124 posts
1 award
50 influence

Aug 09 '10, 03:56 AM

Thank you Jon and Steve for replying. A few weeks ago I was thinking that all I had to do was go on Legal Zoom pay some money and voila it's all done. I would like to and plan on having a better understanding of the set up process and maintenance of this type of entity.

I've read both of your posts in the past and I appreciate the level of understanding that you have for your businesses and sharing it here.

Best

Clint Coons

Real Estate Attorney · Tacoma, Washington

11 posts
2 awards
50 influence

Aug 09 '10, 01:45 PM

The first question you should ask yourself is what do you plan to do with your LLC? If it is your intention to buy and hold property and you plan on using traditional financing then you may want to hold off on establishing a LLC. I say this because you will most likely be required to take title in your own name and any subsequent transfers will subject you to a transfer fee. Understand that I assume you are investing in PA. PA assess this fee on transfers into business entities or land trusts. In many states my clients avoid this fee by utilizing a land trust then assign the land trust to their LLC. Unfortunately in PA this does not work.

If you are buying for cash then this isn't a problem because you can take title directly in the name of the LLC.

If you plan to flip properties or engage in other short term strategies you should consider a corporation or a LLC setup to be taxed as a corporation.

Derek Decoste

Real Estate Investor · Dallas, Texas

22 posts
50 influence

Aug 09 '10, 02:54 PM

Originally posted by Jon Holdman

Single member LLCs can be pierced, though, allowing the plaintiff to go after other assets.

Can you point me to where there is more written about this? I was under the impression that it did not matter the number of members, though obviously my limited knowledge on the subject was wrong.

Thanks,

Derek

Elisha Lowe

Homeowner · Philadelphia, Pennsylvania

124 posts
1 award
50 influence

Aug 09 '10, 09:15 PM

Thanks to everyone who responded. I plan on interviewing a few CPAs at the end of the month or first week of September. I will be using some of the questions from J Scotts blog which is excellent by the way. I've never worked with any type of accountant really. I'm hoping to find someone who takes a little time to sit down and explain things and won't make me feel like I'm bothering her/him.

I appreciate the help.