LLCs, protection & taxation

[Account Closed]

Hello BP community,

My name is Ryan Gnizak, first time posting on the forums here. I live in Louisville, KY with my wife and 10 month old daughter. Currently I sling product for Pepsi and I am hoping to get my foot in the door of REI.

Now, I'm sure this has been asked many a time on the forums, but I think it would be easier for me to get a specific question answered on the topic of an LLC

I have heard a lot that an LLC is beneficial to form when starting out in REI. What I feel like is my biggest concern is protecting my personal assets & my personal credit, as well as keeping business & personal as separate as possible.

With that I have 2 questions:

1)Would the formation of an LLC be beneficial for me/what are pluses and minuses to forming an LLC? I am hoping to start out Wholesaling, or even rehab if I can get a good hard money investment. With my current full time jobs(my 40 hour work week & being Husband & Dad), I am finding it would be hard to give as much time as I would like to rehab, so I want to start with Wholesaling to get my feet wet, network & learn, while building capital to fund rehab projects as time allows.

2)If I do set up an LLC, is it better (given my interest), to keep the LLC taxation or be taxed as an S-Corp? I have read so many opinions on this and since I am not very tax savvy, I feel like I get bogged down in a lot of people's explanations of taxation. So if anyone can offer a solid layman's explanation, I would greatly appreciate it!

Thanks for reading!

[Dave Toelkes]

Originally posted by Ryan Gnizak:

2)If I do set up an LLC, is it better (given my interest), to keep the LLC taxation or be taxed as an S-Corp? I have read so many opinions on this and since I am not very tax savvy, I feel like I get bogged down in a lot of people's explanations of taxation. So if anyone can offer a solid layman's explanation, I would greatly appreciate it!

Ryan and Annette,

You need to understand that there is NO "LLC taxation" at the federal level. The IRS does not recognize the LLC as a taxable entity. Instead, you tell the IRS how you want your LLC to be treated for tax purposes.

Single member LLCs can choose to be taxed as a disregarded entity or as a corporation. If corporation status is chosen, the default is C-corp unless you make a separate election to be treated as an S-corp.

Multi-member LLCs can choose to be taxed as a partnership or as a corporation (C-corp by default, or, S-corp by separate election).

If you ever plan to own rental property, I would never choose a corporation or the LLC taxed as a corporation for my business entity. If you feel the need for an LLC for rental property, the partnership is probably best.

Additionally, please note that the LLC is not a substitute for liability insurance. You need hazard insurance on your property anyway, so make sure you have sufficient liability insurance protection and you may find that you don't really need the LLC after all.