Asset Protection for Real Estate Investors
Below is a MRR and PLR article in category Finance -> subcategory Real Estate.
Asset Protection for Real Estate Investors
Word Count: 545
Summary
In my early years of real estate investing, I operated as a sole proprietor, simply because I didn’t know any better. I managed to get by with only minor setbacks, but eventually, I realized the importance of choosing the right legal structure for my investments.Keywords
Real Estate Investing Advice, Real Estate Investing Tips, Beginning Real Estate InvestingArticle Body
For the first decade of my real estate journey, I was a sole proprietor due to my lack of knowledge. Fortunately, I avoided major issues, but there comes a time when evaluating the best legal structure for your investments is crucial.If you consult 10 experts, you'll probably receive 10 different recommendations. Here's my perspective, based on personal experience?"but remember, free advice is often reflective of its cost.
If you're just starting in real estate, consider holding off on asset protection until you acquire assets worth safeguarding. Setting up a business entity and dealing with tax requirements prematurely can be unnecessary?"similar to paying for comprehensive insurance on an old car.
When you've built substantial assets, it's time to consider your business structure. First, assess your net worth and whether your assets are at risk. If the answer to either is “Yes,” it’s time for action.
For those looking to structure a property wholesaling entity, the most popular choices are a Limited Liability Corporation (LLC) or a C Corporation. While there’s debate over which is best, I favor a C Corporation. The initial $50,000 is taxed at 15%, and it allows for an impressive employee benefit plan to offset expenses. With an LLC, income is passed through to you. Once you start earning, you'll wish you could enjoy that 15% rate!
Why do taxes matter so much?
Here's a simplified example: personally earning $100,000 means facing a 35% tax, leaving you with $65,000. All personal purchases come from after-tax dollars. However, with a C Corporation, if you show $100,000 in earnings but $50,000 in deductible expenses, you're only taxed on $50,000 at 15%, totaling just $7,500 in taxes compared to $35,000 personally.
What expenses can a C Corporation write off? Consult your accountant or attorney for specifics, but common deductions can include items like a bed or even a swimming pool. It sounds surprising, but if your employee welfare plan covers medical expenses and a doctor prescribes aqua therapy, writing off a pool is possible. Similarly, if you need a bed due to back issues, it’s deductible. Personally, I own a "Sleep Number" bed.
A wealthy mentor once said, "It's very hard for a C Corporation to show a profit!" Through strategic expensing, corporations can appear less profitable, reducing tax obligations. You still get what you need, all while minimizing taxes, assuming a well-structured approach.
In summary, choosing your structure wisely is key to protecting assets and maximizing benefits.
You can find the original non-AI version of this article here: Asset Protection for Real Estate Investors.
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