LLC taxes. Do i need to open out of state LLC?

8 Replies

I have read a lot but am still unsure. 

I live in California,  investing in Florida. 

Which state to register LLC in?

I will be flip and sell and flip and hold. 

I have a regular w2 day job making 90k.

How will LLC help my taxes specifically? In both hold and flip?

In Florida, LLC doesnt seem to add much asset protection.

Thanks for helping a newbie!

Probably both.... the LLC will have to have an address (california) and have to be set up as a foreign entity to do business in Florida. An attorney can give you an idea of exactly what you should be doing

And you're going to pay 800 min to the CA franchise tax board no matter where the LLC is...

LLCs are NOT for tax purposes, they are for liability protection. You will NOT save any money by operating with an LLC, indeed there are startup & operating costs involved (not large), which means having an LLC will actually cost you more than not having one (outside of any liability related issues). You will have to pay an annual filing fee with the secretary of state to keep your LLC current with the state - generally this is some nominal fee on the order of $100/yr. In California this annual fee (called a Franchise Tax) is $800 (the highest in the country by far, hurrah for California) + an addition fee based upon the LLC's income. 

@John Voychick

If you're living in CA, your LLC will likely be subject to CA laws. The FTB takes a very broad opinion of what is considered "doing business" in CA. Florida I believe is one of the states with no income tax so you might want to look into the LLC filing requirements there if they have a franchise tax or business tax or something similar. You'll want to look into the rules for the new 199A 20% pass through deduction which could help you save some money on your LLC income, especially since it sounds like you may be under the income thresholds to be able to take advantage of it. Talk with an attorney or CPA who will be familiar with your entire situation rather than the little snippet you've listed out above. If you're going to be the only member of the LLC, someone forms an LLC mostly for liability protection but if you have more than one partner then it becomes a useful vehicle having an agreement between the members as to how to run the business and split profits and such. A single member LLC is a disregarded entity for federal tax purposes but will still require a filing in CA. If you need names of accountants or attorneys in San Diego, let me know. I also can give you the name of an attorney in Florida if you decide to go that route. Good luck!

*None of this post is intended to create an attorney-client or CPA-client relationship.  Readers should seek professional advice.

If you are doing business in FL you should form the LLC in FL. In most other states you would not also need an LLC where you live just because you lived there, but I can't speak for CA, they are cray cray.

As mentioned above, an LLC will not save you money. It is made for liability protection. Have you considered getting an umbrella insurance policy instead of an LLC for your first few properties? Also, please make sure you understand the due on sale clause before you proceed to make an LLC for your property.

This is all super helpful. I'm still a little conflicted about LLC.

In Florida, the advice I got was a single member LLC does not help w asset protection.

I'm going to be getting an umbrella policy.

Now, with my first house likely a flip, am I going to get gauged with taxes if we sell in 3 months? Or is there a way to reduce that huge hit.

I thought an LLC might help avoid the self employment tax.

@John Voychick an LLC has nothing to do with taxes. Flipping will subject you to capital gains and self employment tax. One way to avoid self employment tax is to file as an "S" corporation, but you should speak with a CPA to decide if that is right for your situation.

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