LLC legal advise sought from Pelican Brain-trust

jorian · 10-06-2010, 11:01 AM

I am doing some real estate business in California and would like to mitigate tax consequences, most notably withholding tax. I am considering setting up an LLC. I don't hold the property long - typically 3-6 months. Couple of questions I have:

- is an LLC the best entity to own the project?
- since CA has state income tax can I set up the company in a tax favoured state?
- sounds like CA LLC's pay an 8.84% corporate tax rate or a minimum of $800 - is this calculated just on capital gains or all income to the LLC?
- is there are optimal year end date?

I'm need to sort this out soon as I already have a few qualifying transactions in the works. Any help is appreciated.

Dantilla · 10-06-2010, 11:17 AM

LLC is perfect,

California tax law sux.

red-beard · red-beard's Garage

Quote:

Originally Posted by jorian

I am doing some real estate business in California and would like to mitigate tax consequences, most notably withholding tax. I am considering setting up an LLC. I don't hold the property long - typically 3-6 months. Couple of questions I have:

- is an LLC the best entity to own the project?
- since CA has state income tax can I set up the company in a tax favoured state?
- sounds like CA LLC's pay an 8.84% corporate tax rate or a minimum of $800 - is this calculated just on capital gains or all income to the LLC?
- is there are optimal year end date?

I'm need to sort this out soon as I already have a few qualifying transactions in the works. Any help is appreciated.

The advice you will get here is worth what you pay for it. Contact a good accountant and/or a good attorney in corporate law.

The information will vary from state to state. And starting the corporation in a different state MAY be able to shield the income. BUT, if you live in California AND everything is taking place in California, they will probably treat it as tax evasion if you open a Delaware Corp and try to avoid paying corporate taxes.

We opened an "S"-Corp and use a K-1 for distributions and pay no corporate income tax. We pay regular income tax on the distributions. But we are also in Texas.

Hugh R · 10-06-2010, 11:50 AM

I had a CA "S"-Corp and the minimum tax is indeed $800. There really isn't a tax advantage that I can remember, but it did make getting health insurance easier as a corporation. The income flows to you as an individual, but you can limit your liability if it's set up correctly. Talk to a tax accountant/lawyer for sure.

jorian · 10-06-2010, 12:39 PM

Thanks for the replies. I live in Vancouver not CA. I have hired a tax attorney but I'm looking for some perspective from people who already operate an LLC. Sometimes lawyers/accountants make things more difficult than they need to be.

MT930 · 10-06-2010, 02:12 PM

Holding Real Estate in an S-corp is less than ideal.

I would talk to a Cali Real Estate / Tax attorney for the best answer.

RWebb · RWebb's Garage

the main pt. of a Limited Liability Company is to....

limit liability (!)

think of it as a mix of a sole prop./partnership (income tax is passed thru) and a corp. (liability)

how that helps you for this project, in Calif. I dunno; I do think that Calif. has a cap. value tax on them, tho you can usually decide in what biz form you want to be taxed

you need to figure out the costs to set one up too -- that includes the cost of adivce from people with high hourly rates...

see if you can find some info from the Calif. agency that regulates and/or promotes small biz

HardDrive · 10-06-2010, 04:01 PM

+1 to RWebb.

I just started a design/project management firm. And by firm I mean 'me'. I went LLC. Taxes aside, I would rather have something between me and a lawsuit. LLC isn't prefect, but if you maintain financial hygiene, and don't allow your personal assets and those of the LLC to intermingle, LLC is solid protection for your personal assets.

Am I a lawyer? No. Just my 2 pence.

Hugh R · 10-06-2010, 04:12 PM

When I incorporated, I hired a service, then legalzoom.com came along. It can do just as good a job. Incorporation fees are something like $125 in CA. But again minimum CA income tax for a LLC is $800. As HD said financial hygiene is the key.

RWebb · RWebb's Garage

fraud, CERCLA haz waste, and a few other things are included in a legal doctrine called "piercing the corporate veil"

a Ct. will surely pierce an LLC also under such conditions

other than that you are pretty safe (in the US)