@Jim Kennedy , thank you very much for responding. It sounds like, unless I share a last name with the President, you don't really see a need for the LLC.
The way I'm looking to invest, it would be my LLC investing into the sponsor's LLC. I would have no day-to-day interaction with the tenants. I would also be investing alongside other investors. Does this change your opinion?
Also, and I hope you don't mind me asking, a couple questions assuming it does make sense to move forward with the LLC:
1.) Would you recommend getting EIN for LLC (for ease of opening business checking account)?
2.) If LLC is created in 2016 but doesn't invest until 2017, is there anything that needs to be filed from a tax standpoint (I would assume not)?
-A single member LLC doesn't need a Federal ID # ("FEIN") until you have payroll. Other types of LLC's require a FEIN. It takes me about 15 minutes to prepare and file the form for for my clients.
-We advise our clients to file returns with all zeroes on the. The IRS knows your formation date, and if you don;t file, there's a good chance you'll get a friendly letter from the IRS saying "Sorry but we don;t seem to have a tax return on file", so we file a zero return @ year end to avoid unwanted IRS attention. The want to make sure you are not making money and not reporting (violation of IRC Section 61), so by filing returns with all zeroes you let them know. For the record there is still a lot of information to enter when doing so, its not just one big zero and done, but it is significantly less time than filing a return reflecting activity.
NOTE: I learned a lot about what attracts the IRS's attention during the years I worked at the now defunct IRS's Philadelphia Service Center (the biggest Service Center in the country - all foreign returns went there as well), first as a Tax Examiner, and then after I was promoted to the Criminal Investigation Division, investigating and resolving fraud, and have discussed this with realtors in lectures that I have presented to various REIA's in three states over the past 12 years, and keep an eye on these facts when filing my own return, which includes a string of residential and commercial investment properties in two local counties that my wife and I own and operate.
Jim Kennedy, CPA
@Jim Kennedy , so if I understand correctly:
1.) FEIN is not needed to open a business checking account (I guess I could always check with a local bank/credit union, but figured I'd throw it out there).
2.) Technically no, but you should to show you're acknowledging the entity, even if there is no activity (but if it is taxed like a partnership and flows through to the member, it's just part of the member's return anyway - although maybe an extra form or two - isn't it?).
@Jim Kennedy , just going through my posts and figured I'd give this thread a bump along with a couple updates:
- I have formed the LLC and decided to utilize a local attorney to do so.
- I applied for an EIN online at IRS website, even though I probably don't need one. This will allow me to provide EIN instead of SSN to sponsor for K-1.
- I will be opening business checking account shortly.
- Are attorney fees to start LLC and file with state/county considered organizational costs ( vs startup costs)?
- If so, can the organizational costs (assuming under $5,000) be deducted in full or do they have to be capitalized?
- Does it matter whether I pay attorney fees from my personal account vs LLC account?
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