structure business for inside &outside liability &for tax benefit

[Kalen Mills]

I went to a REI seminar recently and heard some new info on how to set up LLC, S-CORP & TRUSTS. The guru was saying to have your llc under an s-Corp for multiple reasons.

1. It provides layers of liability protection.

2. It allows you to pay less taxes as a W-2 employee for your company.

He also said both of these entities can be in a trust????

It seemed to make some sense to me as he explained it, but I am now wanting to set up an llc, and if he was right I will have a small window of opportunity to put llc under s-Corp.

How do I structure my business to have inside and outside liability protection and also pay as little taxes as I can legally get away with?

[Ashish Acharya]

@Kalen Mills , I am glad that you are networking via the REI meetings. I personally have seen more people trying to sell at these meetings. I generally meet with other investors and leave before the presentations.

Anyway, your concern is valid.  As a flipper, you have more business risk compared to normal rentals. 

Let me tell you what you might need and not need. 

You dont need: Trust. If you ever need it, you can always get it. It's not that you dont get it now when you get started and you can use it. There has to be a detailed discussion with your attorney/CPA before getting these trust and to find out if you really need them. ( Trust is not the best or the only one vehicle for liability protection, especially when you are starting out.) 

You need: S-corp. What you mentioned LLC within S-corp and LLC taxed as S-corp are two different things. Both of them are valid structure. What you might need is just an LLC taxed as S-corp. As Flipping generated ordinary income, you will be subject to self-employment taxes. If you run your flips via just LLC, you will pay that SE tax, if you run via LLC taxed as S-corp, you will avoid that.

@Wayne Brooks mentioned, Since S-corp has to pay salary, usually it is beneficial to get S-corp after you make around 50k. (because you end up paying salary the entire amount you make and pay with salary comes payroll tax which is almost equal to SE tax you would save. So at the end you dont save any taxes) However, there are instances where IRS will be ok with paying a very minimal salary when you start out and catch up with higher salary later when you expand. So, in general you can get S-corp and avoid SE tax as soon as you start. 

And there is no small window as you mentioned. If you wanted to put LLC under S-corp, you can always do that. There is no time restriction.

For S-corp election, in a simplified explanation, If you want to ELECT LLC as s-corp, you have to do within 2.5 months in the year you want to be taxed as S-crop when you create LLC (But IRS gives you some exception and you can elect past 2.5 months too. OR You also have an option to elect LLC to be taxed as S-corp every year.