The Last Piece in the Incorporating Puzzle

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Flipping Property

Flipping property is one of the fastest growing cottage industries in the nation. In the last 5 years with the lowering of the interest rates on mortgages, buying homes and selling them has been very profitable. This has become a booming market. Even though the markets have slowed down in the past 6 months a lot of people are still holding on to their property. They may be renting them, or just waiting for the right buyer to come along, this is a great way to have income, or build equity. 

When Attorneys are looking into the merits of taking a case they will look up the assets of their potential victim. This is relatively easy with property; it is usually visible on public records over the Internet. All you need is a parcel number and you can see who owns a property. In some instances all you have to do is Google the name and everything that person owns comes up, which is convenient for the attorneys, scary for individuals. If you look like you have a lot of equity then the lawsuits just start coming. Ask anyone who is holding multiple properties personally. One way to protect those properties is to hold them in a LLC in Nevada. If the corporate structure is in place correctly then it will not appear to be such a juicy target.

If you are considering holding all your properties in one LLC, we would advise you against it. Think of it this way. If one property with equity is looking like a “Fatted Cow” ready for slaughter, then multiple properties will look like a herd of “Fatted Cows” ready for slaughter. Do you want to risk the whole herd or just one cow at a time?

The Hub Strategy

When looking at different structures of corporations there are a few different strategies that will work to insulate client from harm.
One of the most popular is the hub theory. When living in the corporate world multiple companies start to make since to people that have multiple revenue streams. What we suggest is to have one corporation that owns, or is the sole member of the other corporations. This way you have separated the liability of one venture from another. They would be disregarded entities that pass through to the Hub (the Managing Corporation). This strategy is particularly helpful when you have multiple properties. Inventors or Writers may find this useful when trying to protect a patent, book or script. When you find that you are going to be taking income from these income streams it is very nice to only have to do one tax return.

Physician’s are at high risk

When thinking about the different ways to use Nevada corporations there are some basic structures that are commonly used by our clients. Doctors have large risks in their profession. Malpractice suits are on the rise. Here is a scenario of how a lot of physicians protect themselves from these dangers. 

When practicing Medicine in a different state than Nevada. Most physician’s will probably want to hold there license and practice in a Sub Chapter S. A Nevada Sub Chapter S would have to be registered in the state your in, which typically costs somewhere between $300.00 and $700.00. The other option is to simply set up the Sub Chapter S in your own state 

The best way to protect your assets is to hold them in a LLC taxed as C-Corporation. Typically we would suggest that you hold your office equipment in one LLC, and lease the office equipment to the Sub Chapter S. 

This will achieve two things for you. One, your Sub Chapter S may take a deduction on your office equipment lease. If a judgment did come at the Sub Chapter S and you lost it, or bankrupt it, who ever took over the Sub S would still have to pay it’s bills, so they would still have to pay for the lease, which means the people who sued you would still be paying you (your LLC C- Corporation). In this way we set you up to protect the value of your equipment with the LLC. You will lose the Sub S but not everything.

This will also give you a legitimate way to transfer money between companies. If you give your C- Corporation a different tax year end than December, then you will find that this can be very helpful when tax time comes around. In all these scenarios the most important part to make these strategies work is the documentation. Remember if you do not write “IT” down you have not done “IT”. This strategy works best when you are not on public record as owner of the LLC.

Sub Chapter S the Sacrificial Lamb

Here at think this is the only tax structure that should be held in a Stock Held Corporation. The reason for this thinking is that we think this is the best vehicle to be in the public eye. It does not matter that you would be identified with this corporation. We would want all attacks to come at this company because this company would be the Sacrificial Lamb. 

Let me explain, when you are out there doing business and setting up contracts, acquiring debt, any kind of liability we think that this should be done through a Sub- Chapter S company. This is the best way to pay your self. You can pay yourself a small but reasonable salary, this will control how much state personal income you will be paying, then pay all your expense, then take a distribution at the end of the year, or all through out the year. As long as you keep those distributions should be some where between 50% and 70% of the salary you paid yourself. You will be paying Federal Income Tax on that money but not state, social security, or employment etc. When you are looking a tax savings this is a considerable tax savings, depending on your tax bracket. 

Because you can pay your self a small but reasonable salary you decide how much you are going to be paying the state you are in on your own personal state income taxes. Most people pay full employment taxes on all the money they take in so typically you will be enjoying big savings.

Further we suggest that you make sure that you keep this company broke. If a lawsuit comes at this company for any reason, if this company it was formed in Nevada then you can simply let it go, bankrupt the company but not the stock holder,(YOU). This is a much cheaper way of dealing with lawsuits. We consider this to be the sacrificial lamb and can be liquidated without heavy consequences.



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