LLC - Operating Agreement

3 Replies

Hello everyone.  I have real property which is mortgage free and want to transfer into a LLC for asset protection. I am drafting the Operating Agreement and have been doing some research.  However, one thing that I can't seem to find a straight answer on is the proper way to select the tax status of the LLC. I understand that an LLC can elect different tax status: S-Corp, C-Corp, Partnership, or disregarded/pass through entity. 

My question is:  "Do I need to specifically declare which tax status the LLC will be choosing in my actual Operating Agreement? Or is this something that only needs to be done when filing my tax return?"
Originally posted by @Shaun R. :
Hello everyone.  I have real property which is mortgage free and want to transfer into a LLC for asset protection. I am drafting the Operating Agreement and have been doing some research.  However, one thing that I can't seem to find a straight answer on is the proper way to select the tax status of the LLC. I understand that an LLC can elect different tax status: S-Corp, C-Corp, Partnership, or disregarded/pass through entity. 

My question is:  "Do I need to specifically declare which tax status the LLC will be choosing in my actual Operating Agreement? Or is this something that only needs to be done when filing my tax return?"

Those are scary words: "I am drafting the Operating Agreement and have been doing some research." Unless you are equipped to defend it in a lawsuit, I'd change the wording to "My attorney is drafting my Operating Agreement and he asked me about . . . "

@Shaun R.

You should be following the rules layed out in the operating agreement. If you are not...what is the point of even having the operating agreement.

You should have a consultation with a CPA to understand how your entity should be taxed and then list it on the operating agreement.

If you want to be taxed as a C-Corp or an S-corp, there are additional forms that need to be filed with the IRS.