Capital Gains tax within a 3 person LLC

[Blaine Cox]

If I am part of a 3 person LLC and we are flipping a property. How can we set aside capital gains tax to be able to individually have what we need come tax time? This will be a less than 12 month flip.

For example: If we clear $50,000 after fees, commission, etc and if the capital gains tax is 24% ($12,000) do we set aside the $12,000 as a company and come tax time take from that as far as what each of our portions may be? We each have a different percentage of ownership within the LLC. Also, how is the capital gain percentage determined within an LLC (22%, 24%, 32%...... etc).

Thank you to anyone in advance!

[Michael Plaks]

Quote from @Blaine Cox:

If I am part of a 3 person LLC and we are flipping a property. How can we set aside capital gains tax to be able to individually have what we need come tax time? This will be a less than 12 month flip.

For example: If we clear $50,000 after fees, commission, etc and if the capital gains tax is 24% ($12,000) do we set aside the $12,000 as a company and come tax time take from that as far as what each of our portions may be? We each have a different percentage of ownership within the LLC. Also, how is the capital gain percentage determined within an LLC (22%, 24%, 32%...... etc).

Thank you to anyone in advance!

Things work very differently from what you think. To understand it and, more importantly, to prepare, the three of you would benefit from a professional consultation. That said, here're some pointers to start:

- Your LLC does not owe and does not pay any taxes. The partners do. Accordingly, the company cannot set aside any money for taxes, it's on the partners.

- The amount of taxes due entirely depends on your respective personal tax situations. If all 3 of you owned exactly 1/3 of the LLC (I know it's not your case), each of you would be allocated exactly 1/3 of the profit. However, each of you would owe a different amount of taxes on your respective shares. One of you might owe twice as much as the other, and your LLC has nothing to do with it - it's all on your personal sides.

- Trying to have the LLC compensate partners for their respective (and uneven!!!) tax liabilities is wrong business-wise. Not to mention that it is also wrong for tax reasons.

- You call it capital gain taxes, but it is not. It will be an ordinary business income.

- The LLC will almost certainly need to keep records as a partnership and file a partnership tax return. This is complicated and not cheap. The LLC should be paying for the bookkeeping and tax compliance of the LLC (as opposed to your personal tax preparation.)