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Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121565  
Subject: Re: New business- Tax Questions Date: 1/26/2005 11:14 AM
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dozer183e: "I've talked to 2 CPAs and an attorney who specializes in real estate and taxes. Everyone has a different opinion, and although talking to these professionals has been enlightening, I am still confused on what I should do."

Sometimes it is like talking to economists, everyonehas a different opinion. It might be just a case of picking your poison, too.

"One favors an LLC. But it seems that wouldn't save me much on taxes. Don't I still file the profit on Schedule C and it goes under ordinary income? It will give me protection if I was sued or went bankrupt. Easy to set up, low fees.

One favors a Limited Partnership, with an LLC as general partner, and I would be the other partner. Kind of confusing, but the general partner is the one who has the liablity, and since in this case it is an LLC, My assets are protected. This would take more to set up because there are two entities. Taxes seem confusing too, I think the Self-Employment tax kick in, right?

One favors an S-Corp. I can pay myself a salary, pay SS and medicare taxes (half from my paycheck, half from the corp), and then I can pay myself dividends, and to be truthful I am still figuring out how that gets taxed. What about the profit left in the company? When/how does that get taxed? This is a bit more expensive to set up, and I would have to do payroll."


In my experience real estate incvestors always want pass-through type entities, to avoid taxes at two different levels.

It sounds like you have been focused on income taxes, but what about franchise taxes on the entity.

In Texas, for example, corporations and LLCs pay Texas franchise tax (which is essentially the greater of an asset based tax or an income tax). Partnerships do not currently pay franchise taxes (although that may change now the legislature is back in sessions and funds are short). As a result, WRT to franchise tax issues, limited partnership with LLC general partner is often the preferred structure.

I cannot answer your income tax questions, although it seems to me that as the sole owner, you will have tax issues with each structure.

Regards, JAFO


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