Posted by JPL on August 30, 2005 at 18:00:25:
How does the addition of partners complicate things? Especially if 2 of 3 will be active and the other only providing the funds?
JPL
Flipping in CA - LLC or S-Corp - Posted by Daryl
Posted by Daryl on August 16, 2005 at 14:05:39:
If my initial plan is to buy-and-flip, which entity type should I initially form? Does it make sense to have one entity type for flipping and one for buy-and-holds?
I’ve been doing a lot of reading/researching as well as discussing with my attorney and tax accountant, but I still don’t know what entity type is best.
BTW: I have three (3) other partners/investors.
THANK YOU.
Re: Flipping in CA - LLC or S-Corp - Posted by John K Haslach, CPA, MST
Posted by John K Haslach, CPA, MST on August 17, 2005 at 15:41:12:
S Corps allow you to control the self-employment tax which may be generated by flipping. Rental income is not subject to self-employment tax and the entity of choice I see for owning to rent is the LLC.
Re: Flipping in CA - LLC or S-Corp - Posted by Daryl
Posted by Daryl on August 17, 2005 at 15:47:42:
Thanks. Does it make sense to have two companies then, one for flipping and one for holding?
Re: Flipping in CA - LLC or S-Corp - Posted by Merez(IA)
Posted by Merez(IA) on August 17, 2005 at 21:05:59:
Yes, it does (is the short answer). Not only do you get away from comingling funds and the whole dealer/investor tax treatment, you also get the separate liability aspects.
Though I’ll expand on John’s answer. One of the other main reasons (between the ss tax issue) people choose an llc over an s-corp for rental property is that having 25% or more of the income come from renting in an s-corp can result in losing the s election (and having the corporation revert back to a c corp).
However, since you are in CA, there is a minimum $800 franchise tax (that increases as the profit increases) per llc per year. You will still have to pay this tax on the llc even if you start the llc in another state (because you are still doing business in CA, you have to pay taxes there).
Though the addition of partners complicates things considibly. Will one of you be doing the work and the others just be investors or will multiple partners be involved in the day to day operations?