Real Estate Agent · Boston, MA · Member since 2016 · 13 posts · 8 votes
Hi all, planning on setting up an LLC but was told by a CPA in boston to do an S Corp instead because it has just about the same protections and that an LLC has a $500 annual filing fee. so each year I'd have to pay $500 just to keep up the LLC vs. aprox $109 for an S-Corp. Does anyone have any experience with this or can lend some advice/ideas? Thanks
Investor · Haverhill, MA · Member since 2015 · 761 posts · 328 votes
10y
I am unfamiliar with S Corp, but thought the LLC offered more protection. Also, I just saw this on a google search.
Both the LLC and the S-Corp. are taxed in this manner, although in some states the S-Corp. must pay an annual minimum excise tax to the state. For example, in Massachusetts, every S-Corp. must pay a minimum excise tax of $456 to the Commonwealth.
I keep properties in my name. I have insurance on the property and have an umbrella policy. I am being told for a LLC, when LLC gets paid it is taxed and then when funds are passed to you it is taxed again.
Lender · Winlock, WA · Member since 2013 · 1k+ posts · 1k+ votes
10y
I was thinking about the age old question that has been beat up a million times on BP or more, of do you put your properties in an entity or hold them in your personal name?
The thought hit me that the IRS has distinctions between being a dealer and not being a dealer. I don't know all the triggers, but the basics are how long you plan to hold the property and what your intent (rent or sell, even rent for a short period of time then sell) are just some of the triggers. I have even heard of a complete entity being reclassified by the IRS as a dealer and therefore having to pay different taxes at higher levels.
I bring this up here because it's conceivable that if a person held both flipping properties and long term rentals in a sole proprietor or in their personal name, because they were co-mingling property types, the IRS could then re-classify all your properties as dealer status and retroactively tax you at higher and different rates?
If this holds to be true, then I would suggest that all investors hold their properties in separate entities based on what the intent with that property is?
As for the original question asked, I have owned an S-Corp for a couple of my businesses and have switched my newer business to an LLC. The LLC offers close to the same protection with less costs and less annual report requirements. The S-Corp has some ways to pay dividends that an LLC doesn't. I would follow the quality advice of a CPA and attorney that specializes in these areas.
What type of investing are you doing? If you are holding rentals you will want to consider an LLC or holding them personally. DO NOT MAKE AN ELECTION FOR THE LLC TO BE TAXED AS AN S OR C-CORP.
An LLC by itself is disregarded and files schedule E on your personal return if you're holding rentals or Schedule C if you're doing a business activity such as flipping or new construction.
If you'd like you're welcome to ask me all the questions you have on LLC versus Corp. Feel free to add them here or PM me the questions. Here is a link to a post I made on LLCs: https://www.biggerpockets.com/forums/12/topics/76052-simple-taxation-questions