As far as setting up a business entity is concerned for your real estate investment business, it is easier than many people think. A great way to get started is to do a Google search on how to incorporate and you will get a list of companies that offer these services for a fee. You simply have to select the type of entity, pay the fee, and you can form an LLC and start doing business for less than a couple hundred dollars.
However, within a few months, you have to decide whether you want a Pass Thru LLC or you want it taxed as a corporation. An LLC can also be taxed as an S corporation where the profits and losses pass through your personal tax returns. While all entities provide asset protection, the decision to choose a C or S Corporation or Pass Thru is a tax question, so you should consult your accountant to determine the best possible option for you.
Generally speaking, if you have a full-time job, an S Corporation is better because all the profits and losses go through your personal tax returns, so any losses can be offset by your other income. A Pass Thru LLC is more practical in case of holding properties.
An LLC is an unincorporated business, but would offer you more protection as compared to a sole proprietorship. All you have to do is pay the required fees, provide the necessary information as per the state requirements and you should be good to go. Keep in mind that not all states offer the LLC as a business entity, so it would be in your interest to check with the Department of State before you decide which type of business entity you want to choose. Different states may also have different requirements in terms of documentation, registration fees etc.
Whenever you decide to set up a business entity, you should keep a few things in mind:
- Make sure you select the right type, whether it’s an LLC, S Corporation or a C Corporation. Each type has distinct features so you need to pick the right one as per your business needs.
- Make sure you incorporate in the right state. Some states are quite flexible and pro-business while others offer low filing fees, etc.
- Make sure you apply for all the necessary business licenses. Even if you incorporate, you still need some type of local, federal or state license.
If you keep these basic elements in mind, you can set up a business entity fairly quickly.
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