Every year about this time as I do my taxes, I think about my LLC. I incorporated my landlording business about 10 years ago. I recall that I was at a real estate seminar listening to one of the gurus talking about how you had to incorporate to protect your anonymity and your assets. This year I was pondering if incorporating my business was worth it. Do the costs of incorporating outweigh the benefits?
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Here is a Brief Rundown of the Benefits.
- It makes my business appear more legitimate. People just like to see that LLC.
- It makes us appear more professional. As we have developed our business over the years, banks and others have liked the fact that we have an LLC. This despite the fact that no bank would make a loan to the LLC in the first two years of existence so none of the properties we bought could be put in the LLC.
- The LLC does provide a liability shield. Thankfully we have not been sued yet and hopefully never will be. But it is nice to know that there is a level of protection there.
- The LLC does provide a bit of anonymity, but a few clicks on the internet will quickly clear that away.
And Here Are the Costs.
- The LLC costs me money. There are annual filing fees and additional taxes. Here in Tennessee for example, there are franchise and excise taxes that sometimes have to be paid.
- The LLC costs me time. There is more paperwork to keep up with. You have annual meetings, corporate minutes and other items that have to be done and kept up with every year. In addition the taxes are more complicated. Not only do I file a 1040, but now I have to file a form 1065.
- There is more complication. You have to be careful about not co-mingling funds. In other words, do not mix your personal funds with corporate funds.
Would I Do It Again?
Is looking more professional and legitimate worth the extra time and expense? I would have to say no. And over the years I have met many investors who never incorporated and seem to be doing well. But with 10 years invested in the name, I will keep it for now. Does this mean LLC’s and other business entities do not have their place? No, not in the least. But for the smaller, less complicated buy and hold business the costs seem to outweigh any supposed benefit.
What are your thoughts? Please share in the comments section.