S Corp?
LLC?
Sole Proprietorship?
Setting up your business is always a concern. What is the best setup? Do any of these offer good asset protection? In reality, they may not. Let’s consider a few facts:
An S Corp is a great setup. I personally have one. All of the income passes through to me personally. I have one really great setup. Not only do I get some great write-offs, I also have what is called a Solo 401K. This is a great retirement vehicle if you have no employees except you and your spouse. How does stashing away 24K a year sound? You cannot do that with an IRA. Not only that, my company writes the check to my 401K, receives a write-off, and it is not income to me. So this works to help shelter some income. As great as this is, the S Corp in itself is no asset protection. Get personally sued, lose big, and the creditor can go after your S Corp shares, which means everything in the S Corp can belong to them. Poof: all of your real estate holdings belong to the creditor. That being the case, I still like the S Corp setup. Liability insurance is a good way to help protect the business and yourself.
What about an LLC? Many investors choose this vehicle. Some investors choose to put each individual property into a different LLC. That is WAY TOO MUCH bookkeeping for me. Also you get the pleasure of writing checks to the state each year for each individual LLC to keep them active. No thanks. Now lets consider asset protection. Many people blindly set up an LLC with only themselves as the owner of the LLC. The person get sued, or the LLC gets sued. Surprise! A single member LLC has been deemed a disregarded entity by FL courts. What does that mean? It means the courts do not recognize it for asset protection. You can lose your assets in a single member LLC if a judgement is entered against you. A multi-member LLC DOES have protection. So, if you have an LLC do you only have one member or multiple members? You need to consider this and talk to your attorney.
What about a sole proprietorship? NO THANKS. You pay the highest taxes on income. You have no asset protection with the exception of a large liability policy. I am BY NO MEANS an insurance guy, so talk to your for the best most up to date information.
If you want to start an entity, or change up a few things, now is a good time to start planning for the new year. Remember, a good attorney and a good CPA are an invaluable resource before making changes. The goal is to make as much money as possible, have asset protection, and give as little money as possible to your favorite uncle: Uncle Sam.
The opinions in this article are MY OPINIONS ONLY. Maybe some things have changed and some info may not be current. THIS IS NOT INTENDED TO BE LEGAL OR FINANCIAL ADVICE. IT IS MY OPINION ONLY. Guess who I will be talking to in the near future? My CPA and my attorney. Laws change. We have a new administration coming in. This is why you need PROFESSSIONAL ADVICE. Take my advice, and talk to your professional advisors today.
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