choice of business structure

If you’ve talked to Diane or I in the past year about choice of entity, we’ve probably told you about our favorite combination, the LLC taxed as an S Corporation. But what about those of you who already have a business? Do you change it, or do you start over? And what are the tax consequences of making a switch? A new letter ruling just released by the IRS offers good news!

I normally don’t like to recommend sole proprietorships to my clients as working business solutions. I hate the additional liability that they create, and from a tax perspective they don’t make a lot of sense, either. You’re looking at paying a 15.3% self-employment tax on all your income, which can be cut in half just be switching to a corporation. But every so often a situation comes up where using a sole proprietorship can work to your advantage.

In my last post I talked about when it can be appropriate to have a single business structure wearing multiple hats. Today I want to talk about how the same applies to LLCs.

A typical new client call often begins with something like: “I’ve got seven homes, two owned outright, and more than 50% equity in each of the others. Can I put them all in one LLC?”