Real Estate Investor · Denham Springs, LA · Member since 2014 · 6 posts · 0 votes
I have co-worker that wants to go in with me on a few small rehab projects and wants to split the profits. He does not want to be a "business partner" he just wants to split profits 50/50 and I 1099 him at the end of the year. Has anyone ever heard of this or done it? I'm just curious how it should be structured on a per deal basis and I can still pass my profits through my company without "mixing" my business with my personal. I'm also going to be taxed as an S-corp not sole proprietor if that makes any difference
Bronx, NY · Member since 2014 · 41 posts · 17 votes
12y
Hi Alan,
I am fairly new to BP. And, will be setting up my single member LLC in ten business days. It would be prudent to have a business partner, rather than single member, simply because the LLC works to protect partnerships. My brother refuses and I cannot use my spouse.
From what I have read, your property in the LLC is encapsulated within the LLC.
If someone who slips and falls on your sidewalk and then sues the property owner, in this case your LLP, your personal assets are protected. If your partner is not listed, then you will fight the lawsuit on your own. There are probably more situations to think about, but it is better explained here: www.myllc.com
I've spent over 10 hours on the site learning. All REIs need to have an understanding and a level of expertise on so many topics in order to be successful!
Investor · Thermopolis, WY · Member since 2012 · 4k+ posts · 4k+ votes
12y
@Alan Knight you are correct that a sub S is better for flips than an LLC. It has to do with dividends vs self employment tax on a part of your income from flips. You simply write up the contract you both sign, and yes you 1099 him at the end of the year for the money you pay him. I am not an expert on this area but it is not horribly complicated I will mention an expert to see if he replies @Steven Hamilton II is truly an expert in this area. You probably should talk to an accountant before doing your setup, it might save you a lot of money in the long run.
I have co-worker that wants to go in with me on a few small rehab projects and wants to split the profits. He does not want to be a "business partner" he just wants to split profits 50/50 and I 1099 him at the end of the year. Has anyone ever heard of this or done it? I'm just curious how it should be structured on a per deal basis and I can still pass my profits through my company without "mixing" my business with my personal. I'm also going to be taxed as an S-corp not sole proprietor if that makes any difference
Any help would be extremely appreciated!!!!
Thanks,
Alan Knight
Alan,
Is he bringing the cash and doing none of the work? You would simply issue him a 1099-INT for interest on the funds.
You need to know you are required to do bookkeeping and maintain financial statements as a corporation. Also, you will need to pay yourself a reasonable salary from the corporation if you take any money out of it.
As for an LLC..... As far as taxes go they do not exist unless they choose to exist. I don't have enough time to find the thread I wrote on the topic; however, a quick search should find it.
Real Estate Investor · Denham Springs, LA · Member since 2014 · 6 posts · 0 votes
12y
Thankyou for all of your comments!! I do know that an S-corp is treated as a corporation in the since I must pay my self a salary in order to issue dividends which is why I want it that way so I can leave money in the company without paying taxes on it. I'm going to talk to an account in my area to find out for sure because he basically want to work on the house with me and split profits but my half I want to keep in my business to avoid personal taxes since it will be re-invested.
Thankyou for all of your comments!! I do know that an S-corp is treated as a corporation in the since I must pay my self a salary in order to issue dividends which is why I want it that way so I can leave money in the company without paying taxes on it. I'm going to talk to an account in my area to find out for sure because he basically want to work on the house with me and split profits but my half I want to keep in my business to avoid personal taxes since it will be re-invested.
Alan,
Depending upon your expected profits an S-corp may not be the best option