Should I Pass Through LLC Income for Tax Purposes? | Asset Protection for Real Estate Investors : Royal Legal Solutions

Should I Pass Through LLC Income for Tax Purposes?

There are two short answers to the title question: yes, and hell yes. But don’t just take our word for it. Passthrough income is a hot topic in the investment community. If you’re not sure what that means, you’re not alone. Read on to learn about what exactly passthrough income is, how it impacts your LLC, and what benefits you will reap from it.

What  is Pass-Through Income?

Pass-through LLCs allow you to collect the profits from your business as part of your personal income tax. The LLC itself is not taxed, but its owners are. This allows you to save substantially, simplify filing, and enjoy more of your hard-earned profits.

Businesses love this feature so much that at the time of this writing, roughly 90% of entities take advantage of pass-through income. While this access used to be primarily the domain of giant corporations, even the smallest business can also take advantage.

How Does a Pass-Through LLC Benefit Me?

The most obvious benefit of pass-through entities is that it saves you tremendously on taxes. Opting out of pass-through benefits would mean you would essentially have to pay taxes on your income twice–both on your personal and your business tax returns. Few among us have the means or desire to pay the taxman twice. Fortunately, businesses don’t have to if they take advantage of pass-through taxation. This is available for any type of LLC, including our personal favorite, the Series LLC.

What About the Taxman?

While pass-through has always had the benefits discussed above, there are even more perks you can take advantage of when Tax Season rolls around. Below are some of our favorite perks, along with a little update about the 2018 Tax Bill.

  • Taxes Are Assessed At Your Individual Rate. This is much cheaper for the average investor than paying corporate taxes, especially if you’re in the early stages of developing your real estate empire.
  • New Law Allows For Deductions. The 2018 Tax Bill shows even more love to small businesses and investors by allowing for additional deductions for pass-through entities. Business owners (that means you, even if you’re the sole owner of an LLC) can now deduct up to 23% of the business’s income on their personal returns, allowing for even greater savings.
  • Taxes are Streamlined and Simplified. One return means a lot less math for you. But of course, if you’re struggling, are new to investing, or have a brand new entity, seek the help of a qualified attorney and CPA to ensure you’re on the up and up.

 

Can I Get Pass-Through Treatment for Other Entities?

You bet! S-Corps, Limited Partnerships, and many other types of entities are eligible for pass-through taxation. Of course, we recommend the Series LLC for real estate investors. All of the information above applies to the Series LLC the same as it would to its Traditional counterpart.

That’s all for our discussion of pass-through income for LLCs and Series LLCs. That wasn’t too painful now, was it? You learned the basics in under ten minutes, but please feel free to include any additional questions or comments below. If you’re thinking about forming your own pass-through entity,  contact Royal Legal Solutions for a consultation about the best entity and tax arrangement for your particular case. Thanks!

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