Transferring funds between your businesses?

[Bryan L.]

I am considering transferring funds between one profitable S Corp into an LLC for the purpose of purchasing a property. Is it better to transfer the money to my personal account as a share holder distribution and then into the LLC? Should I transfer directly from company to company? Are there tax or legal benefits to either method?

[Basit Siddiqi]

Originally posted by @Sandy Kurtzman:

You should seek the advice from your CPA or Tax Advisor BEFORE transferring money unless you want to pay tax on the money more than once (first, when it's reported on a K-1 on your 1120-S Federal Tax Return, and again on your LLC, however you report that entity [i.e. Sch. C, 1120-S, 1065]). Disclaimer: this is not professional advice and should not be relied upon, as everyone's situation is different.

I personally have a Corporation with all properties under that for accounting purposes, which keeps it simple when tax time rolls around, and as simple as possible year-round for accounting. I pay a little more in tax, but I also can deduct certain other expenses that offset that.

As a Tax Auditor (my day job), I hate having to "follow the money" in an audit, especially if the Company I'm auditing doesn't provide bank statements to review with cancelled checks for ALL of the bank accounts. It expands an audit when there are multiple entities involved and money being transferred between them, and gives us way more to look at than we really need. Keep it simple and clean so we don't find questionable transactions.

 Are you holding your investment properties in a C-Corporation? It is usually not advisable to hold appreciating property(real estate) within a Corporation.
It may seem like a simple process now. However, It will get very messy in the event that you want to dispose or transfer the property.

You also may not be getting the benefit of real estate(depreciation) on your personal level if you are holding the property in a C-corp as the income/loss stays within the corporation and not passed down to you at the personal level.

If you are in fact holding real estate in a c-corp; you should seek advice on how to remedy the problem.