Real Estate Investor · Gibsonton, FL · Member since 2016 · 3 posts · 0 votes
I am setting up an LLC. My attorney said I can use 1 LLC for all my business but I don't know if she is thinking about all the tax consequences. Under the LLC I am going to have 2 DBAs. One is for my wholesale and flipping deals and the other is for an electronics business that I am starting. For the electronics business I think I will need a tax certificate for buying parts wholesale and charging customers sales tax. Will having the tax certificate have an effect on the real estate business?Should there be more separation?
Another question I have is about my future rent and hold properties. Should I use a separate entity for the holding company so it can be taxed as capital gains instead of as a dealer?
Investor · Denver, CO · Member since 2016 · 736 posts · 582 votes
9y
You are correct in questioning your attorney. They are two separate business activities. Each business activity should have it's own entity. I recently ran across a similar court case where the IRS took issue with this (thought I think the facts are slightly different).
If it's a single member LLC, what business activity code would you choose on Schedule C when you report the income?
Having a rehab business with a resale license will invite auditors from local jurisdictions as well. You should be paying sales tax at the point of purchase for all materials on your rehabs...if you're pulling permits to do the work, most jurisdictions will ask you to put up a use tax bond for the work. You'll have to provide proof you paid the sales tax at purchase in order to get a refund.
You'll also need to provide a business activity code when you apply for a sales tax license.
Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
9y
Your flipping business should be an S corporation to minimize tax consequences.
Rental properties should be in an LLC.
You should really have a Roth IRA to do some of your wholesaling. Use $10 to secure a wholesale contract, when the IRA sells the contract, the IRA profits from the sale not you. Therefore you don't have to pay any tax ever on the wholesaling profit made by the Roth IRA.
One LLC can be a pass through and added to your personal tax return.
LLC's beyond the first one will need a separate tax return.
I would make the electronics business a separate LLC form any real estate LLC since they are not similar businesses.
Investor · Denver, CO · Member since 2016 · 736 posts · 582 votes
9y
You are correct in questioning your attorney. They are two separate business activities. Each business activity should have it's own entity. I recently ran across a similar court case where the IRS took issue with this (thought I think the facts are slightly different).
If it's a single member LLC, what business activity code would you choose on Schedule C when you report the income?
Having a rehab business with a resale license will invite auditors from local jurisdictions as well. You should be paying sales tax at the point of purchase for all materials on your rehabs...if you're pulling permits to do the work, most jurisdictions will ask you to put up a use tax bond for the work. You'll have to provide proof you paid the sales tax at purchase in order to get a refund.
You'll also need to provide a business activity code when you apply for a sales tax license.
Real Estate Investor · Gibsonton, FL · Member since 2016 · 3 posts · 0 votes
9y
@Ed E. Interesting, In any other business, if I have resale tax license, I don't pay tax on things I'm buying to resell only collect sales tax when I sell. If I am buying a house and supplies to fix it up and resell it and I have a resale tax license why do I need to pay sales tax?
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
9y
@William Jasin The sales tax resale certificate would Not apply to materials for a flip. You are selling a house, Not the individual products you bought. From a practical point of view, would you be selling a house for say $100k and then charging the buyer sales tax on $10,000 worth of materials too? I think not.
I think you received bad advice on multiple grounds. I would speak to your CPA, Insurance Agents, and potentially others about the consequence of putting two totally separate business into a single LLC. I would personally create two separate LLCs and go from there.