LLC vs S corp in NC

6 Replies

I have heard that you should be an LLC and then file as a S corp. My accountant to day told me that i should just be an S corp due to a few reasons. I am new in the real estate game and would like some opinions and why.

LLCs and S-Corps are both great structures used for a variety of situations.  Whatever one is best for you will depend on a variety of factors and it is a very individual decision.

I would go back to your CPA to get the explanations as you've already gone into great detail with that person and they know your personal tax situation better than anybody else.  The only opinion that really matters on this is the CPA you've already talked to.  If their opinion doesn't make sense, then you could lay out your full business and tax scenario here for more opinions.  But based on what you've written, there's no way to say which entity structure would be best for you.


Note: Nothing I say below is legal advise.  Take everything I say with a grain of salt and a Google search.

@Jason Layman

Question:  You said accountant.  Did you mean CPA, or are they just an accountant?

Also, what you should BE and what you should HAVE are different questions.  

Typically you would hold real estate in an LLC for the protections that your state provides that entity type. I would suggest you research rules, regulations, and maybe some case law about how your state protects (or doesn't) LLCs and their assets. Also, it's generally a bad idea to have a sole proprietorship as this offers little to no protection. I think the term is disregarded entity...

Whether you would want to use a LLC or corporation for your company depends on what type of business you will be doing and what your strategy is.

Examples:  

  • If you are managing rental property with this entity, you would probably want a LLC for the protections it offers; but there is also a case to be made for a C Corp since it offers the greatest tax advantages and is NOT a pass through entity like LLCs. You can tax a LLC as a C Corp, but you miss out on many advantages.
  • If you are running a service company to manage flips, a C Corp might be best since you would want to be able to expense everything, but if you use a LLC owned by another entity, you might want it to be a flow through entity.

Personally, I don't know of a case for a S corp other than self employed professionals.  Someone feel free to enlighten me on that...

Anyway, when people start asking questions about entity structure, I automatically tell them to talk to asset protection specialists.  You need someone whose business it is to structure your business in such a way as to play to your strengths, set you up for success, and protect your ASSets.  I recommend Anderson Advisors because they are at the top of their game and are (IMO) the best at what they do.  If you search YouTube for Clint Coons, you can watch some videos of what they do and how they can help.  In the very least, it's a ton of great info.

Final note...  in real estate, it's generally the best policy to break down a system into components (entities) based on their role and responsibility.  Doing real estate with one entity is the simplest recipe for disaster.

...just my $0.02...

Originally posted by @Chris Reed :


Note: Nothing I say below is legal advise.  Take everything I say with a grain of salt and a Google search.

@Jason Layman

Question:  You said accountant.  Did you mean CPA, or are they just an accountant?

Also, what you should BE and what you should HAVE are different questions.  

Typically you would hold real estate in an LLC for the protections that your state provides that entity type. I would suggest you research rules, regulations, and maybe some case law about how your state protects (or doesn't) LLCs and their assets. Also, it's generally a bad idea to have a sole proprietorship as this offers little to no protection. I think the term is disregarded entity...

Whether you would want to use a LLC or corporation for your company depends on what type of business you will be doing and what your strategy is.

Examples:  

  • If you are managing rental property with this entity, you would probably want a LLC for the protections it offers; but there is also a case to be made for a C Corp since it offers the greatest tax advantages and is NOT a pass through entity like LLCs. You can tax a LLC as a C Corp, but you miss out on many advantages.
  • If you are running a service company to manage flips, a C Corp might be best since you would want to be able to expense everything, but if you use a LLC owned by another entity, you might want it to be a flow through entity.

Personally, I don't know of a case for a S corp other than self employed professionals.  Someone feel free to enlighten me on that...

Anyway, when people start asking questions about entity structure, I automatically tell them to talk to asset protection specialists.  You need someone whose business it is to structure your business in such a way as to play to your strengths, set you up for success, and protect your ASSets.  I recommend Anderson Advisors because they are at the top of their game and are (IMO) the best at what they do.  If you search YouTube for Clint Coons, you can watch some videos of what they do and how they can help.  In the very least, it's a ton of great info.

Final note...  in real estate, it's generally the best policy to break down a system into components (entities) based on their role and responsibility.  Doing real estate with one entity is the simplest recipe for disaster.

...just my $0.02...

 My advice would be to talk to an Enrolled Agent or CPA(as long as they specialize in tax) bout taxes and tax planning.

Asset protection is an Attorney question. Tax is an accountant question. These should be two different people, not the same.

YOU NEVER want a service business in a C-corp as you run into PSC issues which taxes all profit at 35%.

There is a reason people like I specialize in it. Typically however, for many real estate investors a C corp isn't the best idea; however, it can be for some businesses at certain income brackets

Originally posted by @Steven Hamilton II :


Asset protection is an Attorney question. Tax is an accountant question. These should be two different people, not the same.

YOU NEVER want a service business in a C-corp as you run into PSC issues which taxes all profit at 35%.

There is a reason people like I specialize in it. Typically however, for many real estate investors a C corp isn't the best idea; however, it can be for some businesses at certain income brackets

You're right, I should have been more clear and specific.  When I say asset protection specialist, I'm talking about a firm or group, not a single person.  I use Anderson Advisors because they have real estate attorneys, tax attorneys, and CPAs all in the same group.  This allows them to structure the entities to provide the best mix of tax advantages, legal protections, and functionality.  

As for running a service company from a C Corp, if you get taxed on profit at 35%, you should reevaluate your structure and income strategy. If you cannot expense atleast 90% of the income that comes into your business, you are doing it wrong. There are always ways to expense things so they are not taxable. If you prefer a pass through, if you want to pay taxes on a personal level, if you don't mind giving up your opportunity to expense almost anything you want, then definitely stick with a LLC. It's less work and requites less thinking.

FYI:  If you don't know what I'm talking about when I say you can expense almost anything...  you need to talk to an Asset Protection GROUP!

Originally posted by @Chris Reed :

FYI:  If you don't know what I'm talking about when I say you can expense almost anything...  you need to talk to an Asset Protection GROUP!

And the ears of at least ten IRS agents just perked up. 

PS: Hyperbole right?