Keeping Expenses Seperate

4 Replies

Hi Hunter! 

The easiest way to do this would be separate bank accounts, yes. The smartest way to do this would be to set up an LLC and obtain an LLC EIN, allowing your LLC to have it's own bank account.

Keep in mind, you may also benefit from having a business account with your LLC at some banks and with different account products provided.

In doing this, taxes should be more streamlined as well, and you might benefit from having the rental income 'pass through' the LLC as it's designed to do.

Another benefit to having an LLC set up is the corporate veil of protection it offers, limiting personal liability.

LLC's can be so beneficial in fact that some investors have a sperate LLC for each property- this way if a situation goes into lawsuit with one property, the lawsuit is contained to this property (and this LLC) alone, not all of the investment (or personal property!) the investor owns.

(You might be thinking why would someone sue me over an investment property?? Unfortunately, that's actually as close as the wrong lawsuit happy person stepping in a hole on your property and twisting their ankle- but an LLC would offer your personal assets {and other investments} safe)

If it's just yourself taxes are not so complicated with a SMLLC (single member LLC) so that shouldn't be a huge reason not to use one as the protection benefits offset/outweigh the small steps during tax time.

For future note then it's simply a matter of attaching Schedule C form to your Individual Income Tax Return (IRS Form 1040) and showing a total profit or loss as part of your total income that's being reported. 

During the stages of setting up your LLC, you can include provisions in your operating agreement to have it survive beyond your lifespan and seamlessly transfer to another named individual. In other words what you set up now can last beyond a lifetime and keep working for any future heir as well.

Quite a few people that end up setting up an LLC do so in the state of Delaware, for tax breaks and lower fees, as well as a pretty quick turnaround time in organization.

Overall yes, separate bank accounts would be easiest, and setting up one through an LLC (single member/sole proprietorship) would be ideal.

Hope that helps some = ) 

@Anna Laud hit the nail on the head, the other option would be to do it as a FBN (fictitious business name) file that and then put the account in your FBN. That means you will not have the coverage as you would if it was in an LLC; however, if you do that and include an umbrella policy that covers $1 million or more would put you well covered and save the LLC cost yearly. Either way it's a good idea to be covered by LLC or umbrella policy so that later down the road you do not get in hot water legally.

@Hunter Heimer  

@Hunter Heimer

Hi Hunter- I personally would suggest the formation of an LLC piggybacked with what @Peter Mckernan included about umbrella, prior to the acquisition of an investment property. 

This way the LLC can be on the title vs you personally. Keep in mind as LLC would ever disband, as sole proprietor, you would be the individual 'share holder' so that really makes no difference (unless going into dissolution of marriage, but that's an entirely different asset protection discussion)

Really, first step should probably be the LLC with umbrella, suggested each subsequent property with it's own LLC. It's about protecting you at each purchase, not after the acclimation of multiple properties down the road.

That's my best suggestion anyway! Let me know if you need some people to talk to, and I can send you some real estate attorneys here we work with in Indy . They aren't necessary for the formation of an LLC, but might have help to offer if you're unclear.

This is something you can do online easily = ) 

While legalities vary from State to State in the details of formation, the overall idea of an LLC/umbrella does not.

Hope that helps! 

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