Accounting for Multiple LLCs

[Jayse Brock]

Ok, so after a recent visit to my CPA for personal taxes, I was asking how I should set up my accounting. I have read a variety of articles on BP and they have been helpful but not exactly specific to my problem. Right now I have one LLC (partnership) that maps to one "business" in Wave. Great! Except my CPA said I need to be able to separate each property due to some tax thing.

His suggestion was to move to Quickbooks, although I don't really want to. I realize it's good but I'm also just cheap and Wave is free. Since Wave doesn't have "classes" like Quickbooks, I planned on having each property as it's own "business" and having another "business" as the operational arm, that pays for common expenses.

My question is around how to handle this? Does the operational business every actually record income? Right now it would appear only the subsidiary businesses do, and the parent business just makes money through equity holdings. Do you purchase a property with the operational business and transfer assets to a subsidiary business in Wave by just recording loans and assets, or would the purchase be recorded inside the sub-business? I suppose I am fine just getting a Quickbooks license if I have to, but I have other businesses also, so having a QBO account for each would be hundreds a month.

FYI, I am also curious about any opinions on whether each property should have its own LLC vs just getting an umbrella policy. I understand most people get LLCs, but there are some benefits and drawbacks (e.g., financing loan terms for one) and I mostly just hear to do it because of fear of liability. Aren't there practical ways to mitigate this without a web of LLCs?

[Ashish Acharya]

Originally posted by @Jayse Brock:

Ok, so after a recent visit to my CPA for personal taxes, I was asking how I should set up my accounting. I have read a variety of articles on BP and they have been helpful but not exactly specific to my problem. Right now I have one LLC (partnership) that maps to one "business" in Wave. Great! Except my CPA said I need to be able to separate each property due to some tax thing.

His suggestion was to move to Quickbooks, although I don't really want to. I realize it's good but I'm also just cheap and Wave is free. Since Wave doesn't have "classes" like Quickbooks, I planned on having each property as it's own "business" and having another "business" as the operational arm, that pays for common expenses.

My question is around how to handle this? Does the operational business every actually record income? Right now it would appear only the subsidiary businesses do, and the parent business just makes money through equity holdings. Do you purchase a property with the operational business and transfer assets to a subsidiary business in Wave by just recording loans and assets, or would the purchase be recorded inside the sub-business? I suppose I am fine just getting a Quickbooks license if I have to, but I have other businesses also, so having a QBO account for each would be hundreds a month.

FYI, I am also curious about any opinions on whether each property should have its own LLC vs just getting an umbrella policy. I understand most people get LLCs, but there are some benefits and drawbacks (e.g., financing loan terms for one) and I mostly just hear to do it because of fear of liability. Aren't there practical ways to mitigate this without a web of LLCs?

I have seen an excel/google sheet track the separate properties pretty well if you were looking for for something free. 

Yes, there are some requirements to track the books separately if you want to qualify for QBI deduction if that was intended or for asset protection. 

[Kory Reynolds]

I would consider regular quickbooks over QuickBooks online - QBO is great if someone else is doing all your bookkeeping and they want the ease of doing it remotely.  This is also an option with regular QB as well - you are able to send 'accountant' copies of the file back and forth for them to make adjustments.  The method you have certainly sounds functional, but it never hurts to explore other options.

I am not familiar with Wave, but it is hard to beat the 'power' that exists within Quick Books - there is a very good reason it is the number one bookkeeping software used. With the exception of clients who either use excel / box of receipts of accounting, or those with an enterprise system, it is literally what all of our clients use.  Depending on your volume of transactions and number of properties Excel can do a great job if you have a good system.

I'll diverge from Ashish a bit and disagree that you have to have separate books for each property in order to qualify for the new 199A / QBI deduction. The QBI deduction is specifically for different trades or businesses, if you have 10 residential rentals within one LLC, under the regs as now written you certainly have an argument that this is a single trade or business. There is a disagreement among professionals regarding a new safe harbor election for rentals, of which I am on the more aggressive side and would consider most rentals to qualify as a trade or business. Exceptions certainly do apply - you have a one off triple net lease, vacation home rentals, only have one SFH rental. But my argument would be that anyone who is out there buying multiple rentals and operating them for the purpose of rental income, is running a business, even if it is passive in nature.

Regarding your question about protection, I am certainly no attorney, but it would not be necessary to pull each property into a separate LLC, but as you noted you would want to ensure you are more than adequately covered on your insurance policies. Seperate LLCs certainly do provide some peace of mind. If you wanted to, you could just create a single wholly owned hold co, which then holds 100% in each single member LLC, which owns a property.

[Jayse Brock]

Thanks for the answers! Very helpful

[Michael Plaks]

@Jayse Brock

I have no idea why would one need separate books for each property. I'm with @Kory Reynolds: pretty much all rental properties qualify for the 20% QBI deduction. As long as they have positive net income after depreciation, which most properties don't.

What you need is an ability to separate income and expenses per property within your books. In QuickBooks Online, you have Classes in its more expensive versions, and you can hack it using Customers feature in the cheaper versions. I'm against QuickBooks Desktop in any of its flavors.

As long as Wave allows you to assign expenses and income to a specific property and create per-property reports - you are fine.

[Daniel Hyman]

@Jayse Brock

Creating a separate company for each property in Wave seems very cumbersome and good get messy quickly. I would look into QB online and view the monthly subscription as the cost of doing business. And don;t forget to deduct it on your tax return :)

[Steven Hamilton II]

You will want to utilize the class function in Quickbooks to track them appropriately. You can do this on the desktop version or online.  In Xero it is Tracking Categories that you want to use.

[Jayse Brock]

Thanks for the feedback @Steven Hamilton II and @Daniel Hyman. Seems like I just need an accounting system that tracks classes, and Wave does not do that currently. It's a shame because it works well in other areas!

[Steven Hamilton II]

Originally posted by @Jayse Brock:

Thanks for the feedback @Steven Hamilton II and @Daniel Hyman. Seems like I just need an accounting system that tracks classes, and Wave does not do that currently. It's a shame because it works well in other areas!

 I'd highly recommend Xero. I'm a huge fan.

[Michael Plaks]

@Jayse Brock

I'd highly NOT recommend Xero. :)  It's technologically a wonderful platform, however it utilizes a very un-American technical support concept: you cannot call them for support. You have to leave a message and then WAIT until they call you back. If you're running around like most investors or simply have an urgent issue - you're SOL.

Their stubborn refusal to consider traditional phone support even as a paid option is puzzling to me. I reached their top executive level at one point about this issue, and their other customers have asked for it for years - only to be continuously ignored.

Excellent software, lousy business model.

[Gita Faust]

Does not matter which software you use. You create a company file for each EIN. If you have 10 EIN - then you should create a separate file now it also depends on how you have structured your LLC and EIN. If you need multiple companies then QuickBooks Desktop. Reporting is so robust in Desktop then QuickBooks Online.