I have my LLC with my property in it currently. For collecting rent purposes, do I start a separate business account for the LLC and put rent into the account and then pay myself like that or is there a better way or more tax efficient way? Advice from CPA or lawyer would be greatly appreciated.
You'll want to be careful about co-mingling funds as you move forward lest you undo the benefits of your LLC and open it up to personal liability.
Definitely open a separate bank account in the name and EIN of the LLC. All collected rents and all appropriate expenses should go through this account.
You should not pay for business expenses with a personal account nor should you pay for personal expenses out of the business account.
You may then periodically distribute excess cash flows/profits to yourself by writing a check or otherwise transferring funds.
Thanks for answering. So as far as the mortgage being paid on the rental property, should that be linked to the business account for automatic payment? Or should I use personal account? And what about security deposit? Should that be a separate account link to the business account?
Yes - Everything should run through the LLC accounts.
I am not a lawyer and this is not legal advice.
An LLC structure is purely an asset protection play though. It makes no difference from a tax standpoint. So generally, the entire reason for the LLC is to keep personal liability out of asset. When you co-mingle funds, you basically allow any talented lawyer to do what's called "piercing the corporate veil". That is, they'll say that you and your LLC are the same entity because you behave like you are one and the same.
I have not seen this at play in the legal arena - as I said, I am not a lawyer, so I don't know all the ins and outs of that.
But I have watched the IRS methodically pick apart an LLC and its owner based on co-mingling of funds. They left the taxpayer metaphorically broken and bloody. I'd hate to see the same happen to anybody else if it could possibly be prevented.
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Hi @Ryan L Grinstead .
The company that holds the assets shouldn't be doing business directly with anyone, anywhere. That includes collecting rent, signing contracts, etc.
Ideally, you should collect rent through a separate LLC which will become your personal property management company. If you don't have a separate LLC or cant afford one, collect the rent personally, and then transfer it into your asset holding company. This also means you will need a property management agreement between you and your asset-holding LLC OR your property management LLC and your asset-holding LLC.
So in short, you don't really want to do either of the things you suggested. The other poster got the gist of business v. personal correct, but the best way to avoid "comingling of funds" isn't to simply open a business account, but to structure your LLCs in such a way that your assets are protected.
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