I’d like to give you some information about corporate entity strategy in order for you to be able to better protect your assets. Even if you find this information useful, remember to always consult your attorney and your certified public accountant before you make any important decisions.
Let’s begin with taxes. Here at RTS we issue 1099s as required for most of our owners based on gross income received by us, when it is received by us. Your money comes directly to us, and when it does, IRS considers that money is becoming yours at that point. So, it’s not the net income you receive after it owner pay out, it’s the gross income we receive in your name. After we receive it, you can use our statements and deduct any expenses off your taxes from that 1099.
If you have a property that is in an LLC, you have certain level of choice in regard to the way you file it. This means you can basically choose how your LLC will be looked at by the IRS. You can file you LLC as a S corporation, C corporation, or a pass-through sole proprietorship. This means that the LLC lets all income and expenses pass through directly to the owning entity, whether it’s a person or another corporation.
Usually, if you have several properties, each with their own special LLCs we recommend to take them and turn them into sole proprietorships, passing all of the income and expenses directly to the owning entity. This allows you to reduce accounting expenses, since you will be doing fewer filings and movements for these properties. This is in general terms what we’ve seen most of our clients that own several properties do (as well as myself), but there could be other advantages or disadvantages related to doing this, depending on the amount of money and context that are being taken into consideration. Either way, always check with your legal advisor and accountant in order to know what’s best for you.
One of the things that you will have to look forward to paying every year if you own rental property in Northeast Ohio is property taxes.
Property taxes in Northeast Ohio are handled by the County Auditor / County Treasurer’s office and are always paid in arrears, meaning that they are paid 6 months in advance. For example: if you own your Ohio Rental Property from January 2015 through December 31st 2015 you will get your tax bill in July 2016 for the first six months of 2015.
Let’s say that you sell your mission is to sell your rental home in July 2016, you will get another property tax bill for the second six months of 2015 plus you would still have to pay your property taxes for the month of July 2016.
Where Do The Property Taxes Go?
In Ohio approximately 60 percent of the revenue from your property taxes goes towards funding schools.
How Property Taxes Are Paid
Ohio Property Taxes can be paid in a variety of ways including:
Paid By Your Lender – You have the option of having your paying your property taxes each month as part of your mortgage payment then your lender will take the money which is paid towards your property taxes and place those funds into an escrow account so that they can pay the property taxes when they are due.
Paid By Your Property Management Company – We do receive property tax bills from time to time and in many cases we will either: pay the bill for you if it’s equal to one months-worth of rent, pay the bill with what we have available to pay, or send you the bill and ask you to pay it.
Property Tax Breakdown
Voided Tax Rate – This is the total tax rate which was approved by Ohio voters and it’s used by the taxing district in your county to fund the library, school district, vocational school, community college and more.
Effective Tax Rate – Thanks to HB 920 (Passed in 1976) your tax rate will be reduced when property values in your taxing district begin to increase thanks to updates and “triennial” reappraisals.
Tax As A Percentage Of The Market – This means that the market value of your property will be multiplied by what is the property tax percentage which is listed by your taxing district.
Paying Monthly Is the Best Option
Unfortunately paying property taxes may come as a shock for some Ohio Rental Property Owners that’s why it’s always the best option to consider an easy pay, or budget pay option, which many counties, including Cuyahoga County offer because, this will allow you to budget your money out so your property taxes are paid over time instead of having to pay those property taxes all at once.
Get North Eastern Ohio Property Management
For more information on how property taxes are handled in Ohio, or to get property management for your Ohio Rental Property, contact Realty Trust Service today by calling us at (440) 427-0123 or CLICK HERE to email us through our website.