What should the LLC that holds my property be filed as?
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.