Hey BP! After a bunch of reading here on the forums and blogs and countless books, I've decided that I like the idea of incorporating either with an LLC or S-Corp or perhaps another entity for the added level of personal asset protection. I know for sound legal and tax advice I need to talk to both a CPA and an attorney. My questions are these:
1. I'm still unsure what type of legal entity would work best for me. My wife and I are planning to start off with rental properties. Would a CPA or an attorney be better suited to cover/explain the advantages and disadvantages of LLCs vs. S-Corps vs. other legal entity options?
2. Can anyone recommend some questions I should ask this professional to get the most out of my meeting?
3. Can anyone recommend a good CPA or attorney in Canton, Akron, or Cleveland Ohio?
Thanks in advance everyone for your input!
@Nathaniel Busch might comment on tax advice. He is also a CPA based on Columbus, OH.
When I was researching what to do, I decided, for just starting, an LLC or an S-corp didn't provide much of a difference. However, when you start getting into larger commercial properties I think you want to have an S-corp formed (but I could be wrong!). We went with an LLC. Although, we haven't been able to really do anything with it yet because it is not showing any income yet and is less than a year old. No banks will consider lending to the LLC yet. On my next property I hope to use a private lender that will get our LLC up and running with profits. Right now both of our properties are in our personal names and I operate under the LLC with my tenants, payments, maintenance, etc.
Thanks so much for taking the time to respond and your recommendation! I'll try to connect with Nathaniel. Columbus is close enough that if I can't find a closer recommendation I could take a 2 hour trip.
There are two main advantages an LLC has over anS-corporation.
One advantage is that an LLC is governed by a private Operating Agreement that affords the company a tremendous amount of flexibility, whereas an S-corporation is governed by statutes and bylaws that limit the flexibility the company has with respect to management, profit distributions, meetings and more.
The other main advantage is that an LLC is allowed to have international and entity investors, whereas the shareholders of S-corporations must be U.S. residents or resident aliens. This provides LLCs with greater conduits for investment, as well as greater flexibility for multiple-entity strategies. When it comes to LLC vs S-corp, LLC wins.
For more information https://www.delawareinc.com/ I cut and pasted that information from there. Hope that helps you.
Thanks for the insight. It's great to hear experiences form another local investor! As far as borrowing goes, I'm planning on any having any lenders look through my company to my credit for a personal guarantee. I'm curious, how did you decide that an LLC was right for your business model and did you use a local attorney and CPA that you would recommend?
Thank you! And a great tip regarding the ability to potentially leverage foreign investment with an LLC where that is prohibited with an S-Corp. I'll check out the link you provided. From other reading I've done, I know that many businesses feel there is an advantage to registering their LLC initially in Delaware or Nevada for purposes of helping to conceal ownership as well as Delaware's structure for handling business litigation matters. This is another topic I'd like to discuss with a CPA or attorney to better understand and weigh these advantages against any disadvantages or associated costs.
I'm an attorney in the Cleveland area that focuses heavily on real estate law and serving real estate investors. I have a degree in accounting and do a fair bit of tax planning and preparation too. Earlier this year, I successfully defended a lawsuit from a plaintiff's attorney who sued my client and attempted to pierce the LLC's corporate veil in order to hold its own personally liable. While a judgment for the plaintiff was rendered in this case, the court refused to pierce the LLC's corporate veil. Earlier this week, I posted a detailed analysis of Ohio's veil piercing law here:
Feel free to call or email me should you want to set up a consultation on these matters.
We have used a few different accountants as we have grown our business over the years. We have been using Jeff Craft CPA, from Canton for a few years now.
Exceptionial accountant, entity structure, tax strategy advisor, works with quite a few real estate Iinvestors locally. Also owns rental properties and has experience in rehabbing.
May be worth a free consult.
Good luck in your endeavors.
As a general guideline, an LLC works best for rentals.
- A single member (or Husband & wife) LLC is reported on your personal tax return. simple.
An S corp is better for active rehabber and wholesalers. If you go big enough, going to a C corp may become better.
- An S corp has quarterly tax filing requirements, files its own tax return
- The owner needs to take a salary (and pay social security & medicare tax), etc.
- Using an LLC may be a better starting point, and move to an S corp later when the tax situation dictates.
If you want other investors involved (foreign or domestic), create a separate dedicated entity for that activity.
You need to keep those additional requirements in mind when deciding what is right for you.
I use John Hyre in Columbus. He's a tax attorney and a CPA.
Thank you all so much for your input! I really appreciate it. Great reading material after I get my son down for a nap, multiple professional recommendations, and a concise summary of entity types. The BP community is awesome and you guys have given me plenty to keep working on tonight! I hope i can return the favor somehow. Take care.
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