LLC or S-corp To Buy Tax Liens

3 Replies

I recently read some advice that you should never purchase a tax lien in your own name. Well, before reading this advice, I had already purchased about a dozen tax liens in my own name. a few of them have redeemed.

Now I'm thinking that maybe I should acquire an LLC or S-corp to buy my liens from here on out. But here's the thing. I've owned an S-corp before. From 2011 until I dissolved it in 2013. I did almost nothing with it, although it did have its own bank account. I acquired it through a website, not a lawyer. Although it was a lawyer that set it up for me.

Here's my question: if I give this another go, do I buy the entity through a website like before? And if so, what sites would you recommend? Or should I get it through a lawyer this time?

Or was that even good advice I read? Should I just continue to buy them in my own name like I have been doing already?

Eric,

As I am not a lawyer, take this with a grain of salt.

My understanding is that an LLC is ideal for many investors when the business itself generates a certain amount of income, usually under $40,000 per year NET. Above that amount, it may be advantageous to convert the LLC to an S corp, which is done with a filing called an S election. This amounts to the same LLC, but taxed as an S corp.

The reasoning to convert to an S corp is to avoid the self employment tax which is quite high. I would encourage you to do your own research and speak with a CPA on this.

- Josh

@Eric B.

From an asset-protection standpoint - there is likely little risk to your assets from owning tax liens(my opinion). There may be some risk if you foreclose on the property and the property becomes yours.

From a tax perspective - holding tax liens likely won't generate ordinary income that is subject to self-employment taxes; which negates some benefits from an S-corp.

Basit Siddiqi, CPA
917-280-8544

Okay...it sounds like I don't really need to start incorporating until I start buying tax deeds.

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