05 Jul Choosing an S Corp
Choosing an S Corp -Dear Illinois REIA: Has anyone in Illinois filed for an S-Corp? Can you give advice on the process of Choosing an S-Corp? How Illinois may differ from other states? Is ***** **** satisfactory or should I go a different route?
Our June 19th meeting covered selecting a business entity. You should attend our Belleville, IL meeting on the third Tuesday of each month since you are only 12 miles away.
Choosing an S CORP is Easy
You can start an S-Corp in Illinois by yourself without an attorney or ***** ****. The forms are available from the Illinois Secretary of State’s Office. That being said you should have an attorney review the forms before you file them Don’t have a local attorney I can help you with that connection. You can even have an attorney available 24/7 for less than $40.00 a month.
Tax Considerations for Choosing an S Corp
On of the reasons for Choosing an S-Corp is for income tax purposes an S-Corp is considered a disregarded entity. It does not require a separate tax return but can be shown on your personal income tax return on Schedule C. https://www.irs.gov/businesses/small-businesses-self-employed/s-corporations
When Choosing an S Corp you should try to avoid taking title in the corporations name. The reason being is a sale can be taxed at the corporate rate. It is also harder to take over a property for personal use later on. For federal tax purposes if you live in a property any two of the last five years it is generally not subject to capital gains. You cannot make that assertion for real estate owned by the corporation.
Illinois Land Trust
Since you live in Illinois you should use an Illinois Land Trust to take title to all future purchases. This provides you with privacy and avoids probate. You can even change the beneficial interest without recording a new deed. It is not the only asset protection tool you need. It is only the moat around the castle. A land Trust shows up as a strand alone entity when a plaintiff’s attorney runs a name search at the county court house. Make sure you name them all differently.
One of the big no nos is not having adequate liability insurance protection. If you carry less liability insurance on your business property than on your personal residence or vehicles you have a problem. The judge might decide that the only reason for the business entity is to avoid personal responsibility. The judge can then set the entity aside and let the plaintiff file suit against you personally.
Get $1 Million in liability on each property. Learn the difference between ACV and RCV or you will be surprised after a loss occurs. ACV = Actual Cash Value or prepare for depreciation. RCV = Replacement Cost Value, which means “IF” the repairs are completed in 6 months or less you get another check to cover the depreciation. If available get RCV added to your policy.
You can choose a sole proprietorship, C Corporation, S-Corporation, LLC, or Partnership. Your business entity should own nothing and be the “Trustee” for all of your land trusts.
When Choosing an S Corp you should also obtain a PO Box and have all business and tax papers sent there. This is an added level of privacy. It is also tax deductible. If you keep track of mileage for income tax purposes you should get a PO Box as close to home as possible. It can be your first stop and last stop of the day.
Always make sure you keep minutes of the incorporation meeting (decide on what type of business entity and set up by-laws), shareholders meetings and elections at least annually and give proper notices. You can get a corporate seal at Office Max or Office Depot. Want to save money on that and your other office supplies then Join Illinois REIA.
When Choosing an S Corp or any other business entity you need to have an attorney represent your business entity in all court actions. Evictions will be your biggest need as you start out. You cannot represent the entity by yourself. Access to an attorney will become very important as you consider this move.
My preference is a C Corp but Choosing an S-Corp is also great. Your business entity should own nothing but a check book, land line, business cards and the other 14 requirements to avoid having the corporate veil pierced when a lawsuit comes.
After you get big enough you should consider establishing a family limited partnership with your existing business entity as the General Partner. K-1s and charging orders make a plaintiff’s attorney nervous.
CALL TO ACTION
If you would like to learn the best information about real estate investing and not spend $30,000 attending a here today gone tomorrow seminar then you should join Illinois REIA.
Good Luck and Good Investing