LIMITED LIABILITY COMPANY VS. S-CORPORATION
Ten Reason To Use An LLC To Invest In Real Estate
by Tom Kish

When you invest in real estate, you should put your investment into the name of a business you create on paper and NOT in your personal name. [Most real estate investors chose to either structure their business as a Limited Liability Company (LLC) or an S-Corporation.] I recommend your business be an LLC and not an S-Corporation. An LLC seems to be a good type of business entity for real estate investors because the LLC gives the corporate shield of limited liability [including personal asset protection] and partnership tax for the LLC gives very favorable tax benefits. Additionally, properties can be held in an LLC even if the underlying mortgage is in your personal name if you properly transfer the title.

Here are 10 reasons you may want to avoid holding real estate in an S-Corporation:

1. S-Corporations are on the IRS "hit list" and audited much more than partnerships.

2. S-Corporations are designed for active (ordinary income) businesses. Thus, using an S-Corp for flips is a blatant admission of costly dealer status and impairs dealer-avoidance planning.

3. An S-Corporation is subject to more payroll filings because S-Corp shareholders are
employees and must receive a reasonable salary.

4. An S-Corporation is subject to more IRS scrutiny and controversy over the issue of
paying "reasonable compensation" to shareholders.

5. S-Corporations have limits on fully deducting rental property tax losses because such losses are limited to the shareholder?s basis in the S-Corp's stock, which does not include third party debt, such as a mortgage. Result: A loss of current tax savings.

6. S-Corporations? distribution of tax-free borrowed money to shareholders could end up being taxable because of the above basis limitations.

7. Termination of S-Corporation status freezes the deductibility of unused carryover losses.

8. Taxation on distribution of appreciated property deeded from the S-Corporation to the
shareholder, although no cash is realized.

9. Taxation on the liquidation of the entire S-Corp entity (with appreciated assets) even
though cash may not be realized.

10. Conversion of an S-Corporation (with appreciated assets) to an LLC will result in tax
liabilities even though cash may not be realized.

Tom Kish is an active full time real estate investor with over 7 million dollars of real estate bought and sold in a two-year period. His skills as both an investor and a consultant are widely recognized throughout the industry. As an accomplished entrepreneur with experience in multiple franchise businesses, Tom is committed to helping others create the financial security and balance between life and work they seek and deserve. To learn more about Tom Kish, author of THE ULTIMATE REAL ESTATE INVESTORS GUIDE, visit www.cashflowexperts.biz.