One of the great aspects of limited liability companies (LLC’s) is that we get to choose how they should be taxed. So, we can get all of the great asset protection from an LLC and still choose to be taxed as a sole proprietorship, partnership, S corporation or C corporation. Paula just had her LLC’s set up and is now asking this question:
Q: Tom we created 2 LLC's. One in the state of Fl and the other in WY. The WY LLC is the Manager of the Fl. LLC and my husband and I are the managing members of this WY LLC.
Garret structured both entities for asset protection purposes thus I want to ask you, the tax expert:
How does these entities should be taxed? FYI, the Fl LLC is for investing and holding RE (for passive income purposes) and is the pass through entity. The WY LLC is for distribution when the time comes (Fl. LLC provides a little over a thousand in cashflow and is owing us the properties and initial expenses in cash and personal credit). Should we tax them both as a S corp.?
A: I don’t know. I’m a little confused about how you are using the LLC’s and what your plans are for future investing. My suggestion would be to develop a tax strategy with a qualified tax strategist (CPA) as soon as possible. A tax strategist will ask you many questions about your business, your goals and your personal situation to determine the best use of these entities.
As a general rule, I prefer to have ProVision clients do their tax strategy before they do their asset protection strategy. The reason is that we may recommended different entities or changes to the entities that will require additional work from your attorney. You can avoid this additional legal expense by doing the tax side of your tax and asset protection strategy first.
That said, it’s not to late for Paula. She simple needs to sit down with a qualified CPA and develop her tax strategy. This strategy will allow her to reduce her taxes for decades to come. If you would like help finding a good tax strategist (CPA), please feel free to contact our office at cs@provisionwealth.com and we would be happy to refer you to someone.
Warmest regards,
Tom