Ralph has an interesting question about investing through an LLC.

Q: We have an LLC. Can the flow thru LLC be used like a Roth IRA, eliminating tax liability by leaving a portion of profits in the company to be reinvested repeatedly?

A: Let me answer this question in two parts. Frequently I hear speakers talk about keeping money inside a business and reinvesting it and avoiding taxes that way. Assuming we are talking about real estate investing, we want the LLC to be taxed as a partnership or sole proprietorship (depending on number of owners). The LLC does not function like an IRA. All income flows through to the owner(s) regardless of whether or when the money is distributed.

Still, if you have a good tax advisor and you are regularly investing in additional rental real estate, you should never pay tax on either the cash flow or the gain from the sale of the property. Rental real estate is a terrific tax shelter with good tax planning. So it shouldn't matter that you are taxed on the LLC's income. In fact, with good tax and wealth strategies, your real estate should produce both positive cash flow and a tax loss at the same time that can be used to offset other taxable income.

For more information, please contact Siggy in our office at 866.467.5809 and she will schedule an appointment for you with a wealth strategist.

Warmest regards,

Tom