Investor / Agent · NY, NY · Member since 2009 · 97 posts · 20 votes
I am getting really close to closing some of my first deals in this new world of being a bird dog and I wanted to know if it was a Good idea or Bad idea to accept a check at the closing made payable to me or should it be in a LLC or Corp name. I was planning on having a company setup either way because this business of Real Investing is my future!!!
Also I was curious to know if money made under an LLC would show on my personal tax return or would the LLC have its own tax paperwork. (I know someone will tell me to ask a CPA but I figured I would ask the experienced guys first :D )
First, I'm not a CPA, so take this for what it's worth...
There are two reasons to set up an entity for your business:
1. Liability and asset protection
2. Tax benefits
If you will just be bird-dogging, I'm going to guess that #1 won't be an issue, as you will never actually own the properties, and therefore your liability exposure will be low.
That said, eventually you will want to hold properties and at that point, #1 becomes an important consideration.
As for #2, LLCs are *generally* taxed as a sole-proprietorship (if there is a single owner) or as a partnership (if there are multiple owners). This means that all income will flow through to the LLC owners and would show up as Schedule C income on your personal tax returns. You'll also be responsible for self-employment (FICA) taxes on any income you generate.
Now, LLCs can also be taxed like any other corporate entity (S-Corp, C-Corp, etc), if you make an election with the IRS to have it taxed that way. There may be some advantages to having your LLC taxed as an S-Corp, depending on the level of income you generate and the type of assets you deal in. There may also be advantages to being taxed as a C-Corp, though it's unlikely given what you'll be doing.
That said, I would consult a CPA or an accountant familiar with real estate and let him/her advise you of exactly how you should be structuring your LLC for tax purposes. Based on the type of business you'll be running and your income level, they should be able to make a recommendation pretty easily.