Pond Boss Forums INTRO Questions & Observations Life saving equipment; legal trap?

BillB, great post.

Many folks hold real estate, other than their primary residence, in a Limited Liability Company (LLC). A "single member" LLC can be set up with only one member (husband and wife can be considered a single member). This entity can be "disregarded" for tax purposes and therefore will not be required to file a Federal tax return. In many states the Single Member LLC will have to file a state tax return (typically a one or two page long return that indicates that all transactions will be reported on an individual tax return and then names the individual) and pay an annual tax of some amount to the state. The purpose of this structure is to (as the name implies) limited potential liability. There have been instances in which the LLC vail has been nullified and the owners were held liable. An LLC owner can be held personally liable if he or she: personally and directly injures someone; personally guarantees a bank loan or a business debt on which the LLC defaults (lenders will require a personal guarantee for LLC's and usually closely held corporations); intentionally does something fraudulent, illegal, or reckless that causes harm to the company or to someone else; or treats the LLC as an extension of his or her personal affairs, rather than as a separate legal entity.

Remember an LLC is not an invincible legal shield. It is a tool that can be used along side a good liability insurance policy to help minimize the risk.

Oh and as an also and besides, NEVER hold real estate in a "C" corporation unless you either (1)love double taxation or (2) never intend to distribute the proceeds out of the C corp.

Once again, I'm not an attorney, please consult with your attorney, your CPA, the mailman, and the guys down at the local Pub regarding these matters.

Lastly, (sheesh will this guy ever shut up), merely creating an LLC does not make personal items tax deductible. An LLC is a business entity and in order to deduct business expenses you must have a bona fide business. One in which you materially participate (devote several hundred hours per year to), one that has a profit motive (it doesn't necessarily need to make a profit in the first few years but you better be able to demonstrate that you have knowledge about the industry and that you are taking action to make the business profitable) and one that is not merely an extension of your personal finances. If you fail to meet one or more of these criteria and you have deducted "business losses" against other income then it is likely that you will not fare well during a tax audit.

Thanks to all for the valuable input.
JHAP...your last post parallels the conversation that I had with our accountant, just before we dismissed the LLC idea.

That's because most accountants talk and oddly enough dress similarly.

Brettski,does your accountant wear a gilly suit to work too? Sorry,I couldnt resist.

Don't be ridiculous Tom, I only wear my ghillie suit and my neoprene cod piece on my days off. I mean come on, can you imagine me wearing my neoprene cod piece to work? That would be nuts!

I thought that was a pencil caddy.

As indicated above, most states allow a single-owner LLC. Many states (e.g., Missouri) don't have any meaningful annual expense of having one. There can be tax benefits, but usually are not any meaningful ones. The added liability protection is usually the main advantage.