Should Newbies Go Ahead And Form An Entity?
I am looking to buy and hold investment property with an emphasis on multi. I would like to know what entity, if any, should i form that will make it easier for me later on when I start working as a full time investor, and am looking at much larger properties (1mm and up range) to be able to answer those "how long has your company been established" questions.
This applies in Florida. In other states, YMMV.
Use an LLC if there's more than one shareholder/owner. If there's just you, think about adding a relative for a tiny percentage so that it can file an 1165 and not be a "disregarded entity" leaving you filing a Sched C for IRS purposes.
In Florida, LLC's cost only $50 annually to renew versus $150 for S Corps.
Property can't be passed out of an S Corp without triggering a taxable event. LLCs can liquidate that way tax free.
In real estate situations, LLCs are superior, and in most other situations, they're like chicken soup: can't hurt.
I would recommend an LLC. There is a book, tax loophole secrets by dianne kennedy I believe. It is in the rich dad series. It diagrams all the business entities and you can figure out what is best and when.
Just an idea.
You shouldn't take anyone's suggestion (including mine) here as which entity is best as fact. Only you, your attorney, and your tax professional can best determine what entity, if any, will work best for you. All have positives and negatives and each need to be weighed against the others.
My opinion on forming a business entity BEFORE actually becoming an investor (ie buying a property or 2) is that it is a bit premature. What if you buy your first property and decide that you don't like this afterall? What if you go to the expense and trouble to form and maintain this entity and you never buy a property at all?
People will give you horror stories all day about "the guy who didn't have a business entity" yet they usually fail to say that having a business won't always save you because over 75% of small corps/LLC's are improperly managed (especially newly formed), thus destroying the 'veil' the entity creates.
Also, the majority of businesses within the US are still the little ol' sole propreitorships.
Roger