Originally Posted by
Sparky
My wife and I started an LLC flipping homes and she's also a new real estate agent. We went to tax guy and realized we'll get hammered with taxes. I know lots of my fellow pilots have side businesses (including real estate investments). Looking for some practical advice on how to limit our tax exposure. Thanks in advance!!
Your biggest tax advantage of an LLC is that 50% of the income within the LLC should be shielded from self employment tax (FICA and SSA). That is only if you and your wife are both 50% owners of the LLC. Ideally you should be classified as a non participating member of the LCC. (you can still work on houses etc.) How and who did you have setup your LLC and what do you know about the membership rules?
Here is my cliff note version of advice.
1. Have an attorney who knows about LLC's set up your articles of incorporation and by-laws. You can get an LLC from the state very easy by yourself, but the real value of the LLC is in those articles and your by-laws which are usually specific to what you are doing and trying to accomplish. The boiler plate version from the internet or Legal Zoom isn't a good choice.
2. Use a CPA who deals with small business's and understands LLC's. Use Turbo Tax to do your teenagers taxes.
3. Get a checking acount and credit cards in the LLC's name and NEVER use either of them for personal use. Make sure you classify any money that comes to you as a capital distribution. This is the first place any attorney will look if you ever run into a liability issue. Your personal assets WILL NOT be shielded by the LLC if you have ever used any of the funds in the LLC for personal use. Be very nerdy and accountant like with your money. Quicken or Quickbooks is a MUST.
4. Have an annual LLC meeting and record the minutes of that meeting.
5. Don't forget to annually renew your LLC certificate with the state.
6. If your business grows big enough or has significant assets, have an attorney that deals with estate planning work that into your will. It becomes complicated when deeds become involved. You want the LLC to "live" after any owners for tax purposes. You do not want it to be probated.
7. Pay people for advice. APC and Google can a bad thing for advice on an LLC.
