Real estate can be a very profitable if complicated industry. Still, if you're running your own real estate business as a sole proprietorship or a partnership, you may have an even bigger worry than buying low and staying on budget; without incorporating, you will be personally liable for any damages or debts that result from your business.
Why Incorporate Your Real Estate Business?
Incorporation Options for Real Estate Businesses
A limited liability company, or LLC, is the most common choice for investors. Builders and developers who work with investors typically form an LLC for every property they develop, usually naming each after the property address. The advantage of this strategy is liability exposure for the people who own the project is limited to the amount invested in that specific LLC or project.
Another fairly common option is the S corporation. After forming a C corporation, the IRS allows qualified shareholders to elect S corp status, which gives the entity pass-through taxation. This means that each shareholder is taxed for his or her ownership share of the corporation's taxable income.
In general, a limited liability company is a better option for most real estate investors because it comes with fewer regulations and greater flexibility while still offering liability protection.
Even if you are an experienced real estate investor, incorporation requires a different set of knowledge and it pays to get expert advice. Contact USA Corporate Services Inc. if you have any questions about incorporating a real estate business.
References:
http://www.usa-corporate.com
http://smallbusiness.chron.com/soleproprietorship-form-ownership-real-estate-broker-68053.html
Why Incorporate Your Real Estate Business?
- The following are important reasons to consider incorporating:
- Protect owners from personal liability.
- Reduced risk of an audit, potentially lowering your risk by up to 300%.
- This makes it easier to sell your business as a separate entity is required to be sold as an ongoing business that is not dependent on you.
- Deduct benefits like health insurance, medical costs and life insurance.
- Potential tax savings.
- Income splitting is possible with a corporation. A corporation pays its own taxes at a lower corporate rate, and you can take a reasonable salary, leaving the rest of the profit in the company.
- Increased recognition that shows you take your business seriously.
- Avoid "dealer" status with the IRS if you buy and flip homes. Dealers cannot defer income taxes on installment sales and must pay self-employment taxes on gains. Property cannot be depreciated. If you are considered a dealer and you also have rental properties, the IRS could reclassify your entire portfolio as dealer properties, hitting you with a massive tax bill. Incorporating allows you to buy and flip properties while another entity, like an LLC, holds long-term rental properties.
Incorporation Options for Real Estate Businesses
A limited liability company, or LLC, is the most common choice for investors. Builders and developers who work with investors typically form an LLC for every property they develop, usually naming each after the property address. The advantage of this strategy is liability exposure for the people who own the project is limited to the amount invested in that specific LLC or project.
Another fairly common option is the S corporation. After forming a C corporation, the IRS allows qualified shareholders to elect S corp status, which gives the entity pass-through taxation. This means that each shareholder is taxed for his or her ownership share of the corporation's taxable income.
In general, a limited liability company is a better option for most real estate investors because it comes with fewer regulations and greater flexibility while still offering liability protection.
Even if you are an experienced real estate investor, incorporation requires a different set of knowledge and it pays to get expert advice. Contact USA Corporate Services Inc. if you have any questions about incorporating a real estate business.
References:
http://www.usa-corporate.com
http://smallbusiness.chron.com/soleproprietorship-form-ownership-real-estate-broker-68053.html