Kevin, one of our School of Tax Strategy members, asks the following question:
Q: We have a real estate business with an associated Tax ID # for the LLC. We are also starting an E-Commerce business. Can we use the same Tax ID # for both?
A: The short answer and the answer you would receive from most tax advisors is "yes." Of course, you can use the same EIN if you put both the real estate business and the E-commerce business in the same LLC. The EIN is for the LLC, not for the specific business.
The challenge with this question, though, is that it's the wrong question. Just like my pickle story (I'll put this in my blog tomorrow), the key to a good advisor is not giving correct answers - it's asking the right questions. So what is the right question for Kevin? Here you go:
Q: Should I put my real estate business and my E-Commerce business into the same LLC?
A: Absolutely not! I can think of at least two reasons not to do this. The first is asset protection. Do you want to put your real estate business at risk for potential liability from your E-commerce business or put your E-commerce business at risk for potential liability from your real estate business? Of course not.
The second reason is a tax reason and requires an additional question. What is your real estate business? Is it real estate investment (i.e., buy, rent and hold)? Or, is it real estate development (buy, improve and sell)? If the former, you don't want to mix it with your E-Commerce business because you will eventually want your E-commerce business owned in an S corporation while you will want your real estate owned in an LLC taxed either as a partnership or as a sole proprietorship. See our courses on Building Your Perfect Foundation and Getting the Most out of Your Real Estate at http://www.provisionwealth.com/products.
If your real estate is development, you have opportunities for some of the income to be capital gain taxed at better rates and will want to have a complete tax strategy set up for this. Actually, no matter what your real estate business is, you need a tax strategy. A tax strategy will answer all of these questions and we will ask you many more that will need answering. Please join us on our School of Tax Strategy call tonight and we can discuss the components of a good tax strategy. We will also be discussing the Alternative Minimum Tax and how to avoid or reduce it as part of your tax strategy.
If you are not yet a member of the School of Tax Strategy, go to http://www.provisionwealth.com/products and join today.
Remember that the quickest way to increase your cash flow, build your wealth and reach your dreams is to reduce your taxes. This is why "your financial freedom is closer than you think."
Warmest regards,
Tom