Select the structure of good business for your real estate business As a real estate investor, it is important to choose a business structure, the you the maximum asset protection and better tax advantages. Although I can advise you, what kind of company you need to your company as a structure (you should consult with a lawyer) I can give you a brief overview of the different types of entities. Individual companies. In General, a sole proprietorship is a business of a person and simply "you doing business". It is not required to submit start business with this structure, unless you use a fictitious name or mark. If you have a you a with a fictitious or trade name "d/b/a" or for business activities, such as in your State, city or municipality must submit. The only types associated rights is sole owner are the rights license that your city or State, or the fresh on the economy. Tax consequences of a sole proprietorship. The income of an individual enterprise is income from its owner. In addition as a sole proprietor, you report your income, expenses, gains and losses on schedule "C" on your federal tax return. This income is taxed self-employment. Disadvantages of single Unternehmens. Einer of the disadvantages of a sole trader business, it is unlimited. If you continue everything you personally at risk. There is really nothing of the shielding your personal property. If your company into bankruptcy, you must avoid file for personal bankruptcy protection, the debts of the company. Partnership. A corporation is an entity that is formed by two or more parties. No paperwork must be submitted to create a partnership. In fact, it can be made with a simple handshake. However, is it preferable to have a partnership agreement, which sets the terms of the partnership. If there is no partnership agreement partnership subject to the law of the State. The majority of States in the United States adopted the law uniform partnership, which consists of a set of rules on how partnerships should be, if they have no formal agreement. Responsibility of partnership. A partnership has no protection of the liability of the partners. Partners are jointly responsible for the acts of negligence. Therefore, if a person in a partnership committed by negligence he or she is always personally responsible for this action. Tax consequences of a General Partnership. The, the company itself pays no tax make it easy files an IRS-1065. It is just a form of information, which included the revenue, expenditure and gains and losses of the business of the partnership. A general partnership is treated as a "flow through entity" which means that the profits and losses of the partnership "flows through" to the partners who report their share of income or losses on schedule "E" of their personal income tax returns. The way that this works is that the partnership would send each partner an I.R.S. K-1 form that states their share of the partnership profits or losses. Limited Partnership. In order to form a limited partnership, the partnership must file a "Certificate of Limited Partnership" with the state in which it is organized. There are two types of partners in a limited partnership. There are the general partner and a limited partner. The general partner controls the day to day operation of the partnership and is liable for all business debt where as a limited partner is not responsible for business debts and/or claims. Liability of a Limited Partnership. The general partner in a limited partnership have unlimited liability and if a judgment is rendered against the limited partnership and that partnership doesn't have enough assets to cover the claims, the creditor can go after the general partner's personal assets. Sounds risky doesn't it? Well it is! Now unlike the general partner a limited partner has no liability beyond what they initially invested in the partnership. Creditors can't go after limited partners for the debts of that limited partnership. In addition, limited partners unlike the general partner are not personally liable for acts committed by the general partner unless they participate in management decisions. Tax Consequences of a Limited Partnership.A limited partnership is also treated as a "flow through entity" for tax purposes. I must point out to you that in "flow through" entities, the owners pay individual income taxes on all net profits of the business. This is the case whether they receive those net profits or not. Corporation. A corporation is a business entity that carries its own legal status, separate and distinct from its owners. Its' primary advantage is to provide owners with limited liability against business claims. A corporation requires a filing of an articles or "certificate" of incorporation with the state. There are two types of corporations "C" corporations and "S" corporations. An "S" corporation status must be elected. Tax Consequences of a Corporation. A "C" corporation files an IRS form 1120 and pays taxes on its net income. The primary disadvantage of a "C" corporation is double taxation. Profits are taxed first at corporate tax rates and then again at the individual level. when owners receive profits from the corporation in the form of dividends. An "S" corporation is taxed just like a partnership. It files an information IRS form 1120-S and the profits and losses "flow through" to the shareholders. The S corporation sends each shareholder an IRS K-1 which states the shareholder's share of profits or losses. Liability of a Corporation. A corporation provides liability protection for its owners (the shareholders). If the corporation was sued, the owners are not personally liable. Limited Liability Companies. A limited liability company (or "LLC)" is a hybrid cross between a corporation and a partnership. To form a LLC the requirement is that you must file an "articles of organization" with the state. An LLC is owned by its' members or partners and it is governed by its operating agreement. Liability of a Limited Liability Company. A limited liability company provides protection for its' members. The members are not liable beyond their contributions to the company. If the LLC is not able to meet its' debts, the members are not liable for these obligations. In addition, if the LLC is sued the members are not personally liable. An LLC can be "member managed" or "manager-managed" Tax Consequences of LLC. An LLC is also a "flow through" entity and for single member LLC the tax reporting requirements are basic. All you have to do is attach an IRS form Schedule C which is a Profit or Loss from a Business to your Form 1040 individual return. You will also have to file IRS form Schedule SE which is a self-employment tax form. On this schedule you will calculate the amount of self-employment tax owed. This self- employment tax is a combination of Social Security and a Medicare tax .If there are two or more members of LLC, then that LLC generally must file its' taxes as a partnership. Like I mentioned previously that requires the LLC to file a form 1065. Income, losses, deductions and credits allocated to each owner for the year are reported on Schedule K of form 1065. A schedule K detail is given to the respective members of the LLC detailing their specific shares of profits and losses. They would then use this information and attach the K-1 to form 1040 of their personal tax return and use it to calculate their personal income tax owed. Limited Liability Partnerships. LLP's are a special type of partnership designed to provide individual partners with protection against malpractice by other partners in the business. In some states this is known as a registered LLP, or RLLP. LLP's are primarily designed for professions such as doctors, lawyers and accountants. So there you have it, an overview of the different types of business entities in which to choose from. In running your real estate business, it is imperative that you to choose the entity that works best for you. Furthermore, you should also seek the advice of a competent attorney and an accountant before choosing a specific entity. As a rule of thumb you want the best assessment of the business structure that will allow you to keep a significant amount of income that you made from your deals while minimizing the taxes that you have to pay to Uncle Sam. It makes no sense to make the money as a Real Estate Investor and to give a great deal to the IRS just because you didn't choose the appropriate business structure.
Pages to are hidden for
"Select the structure of good business for your real estate business"Please download to view full document