LLC structure and tax advice

7 Replies

If I own 2 LLC in Texas and one in Oklahoma would it be best to open one umbrella LLC at a bank and list these 3 LLC's under it? I'm looking for protection and to pay less taxes.

@Jerry Alvey

I, like many others here would suggest, think it's best to speak with a licensed CPA in your area to answer specific questions regarding legal entity structuring and tax advice. I spoke with an accountant last week and it is much more informative than BP advice when you can sit and ask specific questions and get detailed answers.

Depends on what you're doing, but (in general) LLCs are not a method for tax savings as they are structured (from a tax standpoint) the exact same way as a sole proprietorship or as holding rentals in your own name.  LLCs are strictly an asset protection tool and have almost nothing to do with tax savings.

@Jerry Alvey Search for "Holding Company' in the BP search and Google.  I believe that's what you're wanting to do.  THIS IS NOT LEGAL OR TAX ADVICE.....Consult a good CPA and Attorney prior to doing this.

That's how my companies are structured, where I have one primary Holding Company LLC with all the other LLC entities under the Holding Co LLC. This is set up for Asset protection. I do still maintain insurance on every property and liability on the entities that have potential exposure also. I'm not sure this step alone will save on taxes though, because LLC's are pass through entities in regards to federal taxes, so even by doing this all the profit will still pass through to whoever is the Member/Manager of the Holding Co LLC.

Also, by setting this up correctly, from what I've been told, when you need to borrow money, instead of doing equity refinance, you can get a commercial line of credit, which can be a lot easier and less paperwork, from what I've been told.

To save on your taxes, ask your CPA if your situation would qualify and should you elect to have your Holding Co LLC taxed as an S-Corp and start paying yourself a salary. This will save on Self Employment taxes.

The other way to save on taxes is ask your CPA if your situation would qualify and should you set up a Solo 401K and have the 401K invest in passive real estate. Also, you may be able to take advantage of company matching and maximize your 401K contributions as your income and company profits go up. Instead of being limited to contributing only the maximum for individuals, which is like $18K year, your company can match and contribute up to I believe its 20% of the profits. This will defer a lot of taxes, if you do not need the extra income until retirement.

AGAIN, THIS IS NOT LEGAL OR TAX ADVICE.....Consult a good CPA and Attorney prior to doing any of this.

To reiterate what everyone else has said, you should really have this conversation with both your CPA and your attorney.  One of my favorite expressions is "If you think it's expensive to hire a professional, see how much it costs when an amateur does it."  I find it best to talk to both because the attorney is going to look at you from a liability perspective, the CPA from a tax perspective, and those interests could potentially conflict so it's best to have a balance of both.

So without offering actual legal or tax advice, I agree with how @Jeff Filali sets up his LLCs, I do mine the same way with a separate LLC for each property and a holding company. It is extra money in tax prep, annual filing, time expense to manage separate LLCs etc which may not be worth it to everyone but to me it is absolutely worth my peace of mind for asset protection. My husband is a doctor, which creates the assumption we have large amounts of wealth and can potentially put us at a higher risk for lawsuits. As a result, I work a little harder and pay more to help mitigate our risk then I would necessarily expect someone else to do. For additional protection I make an effort to mask our personal identity as well as possible through publically filed records. For example, naming our businesses and trusts something generic like "Old Farm House Trust" instead of "the (your last name) family trust," or "(your name) LLC", and using our attorney's name and address as registered agent for the Secretary of State. I also agree with Jeff's comment about asking if you should be paying yourself a salary. We are always working a see-saw balance to tip between personal income and self employment tax to see what will save us money over all.

I'm not sure how you're returns are being filed now, and I can't speak for Texas but in Oklahoma a single member LLC can be considered a disregarded entity, the same as a sole proprietorship. It may help if you can put it all on your personal tax return instead of filing each separately.

For discussion purposes there is another kind of LLC you can ask your attorney and CPA about called a "Series LLC" which is potentially very beneficial for holding real estate. Essentially, you have one master or parent LLC which files a tax return but can have multiple sub-LLC's called "series" under it. Form Example, "ABC, LLC" as the Master and "Series XYZ", "Series 123", and "Series 456". So each series can have an individual property on it, but then you only have one tax return to "ABC, LLC" to file each year. A few potential down sides: 1. They are more complicated and expensive to set up initially, although if you're opening a lot of LLC's and paying a lot of annual filing fees right now it may offset over time if you have an entity already structured for growth and acquisition of more property, 2. They are not available in all states - Texas and Oklahoma both do allow them though., 3. You may not have this issue in Texas where they have been around longer but this type of entity is relatively new to Oklahoma so there isn't a lot of existing case law involving a series LLC. I for one, would not like to be the example from which new case law was written, 4. Although I have heard rumors this will change in 2018, currently title examination standards for Oklahoma do not allow you to take title on your deed in only the name of the Series, you have to still list the parent LLC - for example "ABC, LLC as nominees for it's series, Series 123" so it's questionable how much asset protection this really offers if you're still deeding all your properties in the parent LLC name. So for me in Oklahoma, right now while it's in infancy for our state, I don't feel comfortable using a series LLC. But in Texas you have a better chance of a lot of these things having already been addressed so I think it's worth bringing up and asking about while you're already discussing with your attorney and CPA.

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