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    8 Replies Latest reply on Jan 6, 2009 1:14 AM by Bobby.Kolev

    In desperate need of advice

    sunflower Newbie
      Hi everyone

      Im going to try and keep this as short as possible but still give enough details to hopefully get the advice I need. Thank you in advance for any help!!

      My partner and I started a Real Estate company almost 3 years ago going through the ropes of building our reputation and getting the contacts we needed. We started out dealing with multimillion dollar homes discounted from the appraised value for purchase by investors. Long story short,..we're now dealing with Hotels/Casinos and other very large properties/businesses developments etc.

      A little over a year ago we thought a deal we were working on was actually going to close so we (very hastily) set up a S Corp in TX (where my partner lives) She was told by her personal CPA (she doesnt deal much in businesses) that an S Corp was the way to go to avoid double taxation?

      Please bare with me as I've only recently take over this job of figuring out what we need to do and am a complete idiot when it comes to what taxes are what, which is the better way to set up our company, if it needs changed etc.

      So last night I was informed we are having 2 - 1 Billion dollar deals going into contract tommorrow(today)

      My partner is under the impression that if we stay in TX we'll have Corporate Taxes to pay, possibly along with Self Employment Taxes, as well as our own personal taxes for federal, state, etc.

      So we have both heard that setting up an LLC or other Corp in NV will help us avoid having to pay (some kind of) tax on the income our company receives and that we'll just have to pay tax on what we pay ourselves.

      I was going to have her disolve the S corp in TX and I was going to set up an LLC in NV until I read somewhere that even though NV doesnt have corporate taxes etc that we may still be responsible for taxes because we live in a state other than NV. Im not completely sure which taxes the article was referring to as Ive been reading all kinds of stuff since 5am this morning....its all kind of a jumbled mess in my head right now

      I know we will each still have to pay federal income tax and state tax(me only since she is in TX) but what Im wondering if its even worth it or necessary to move the company to avoid double taxation.
      Reason being is I read somewhere else that that is one reason of having an S Corp since its supposed to be a "pass through" entity.

      We do need to make some ammendments if we stay with the one we have now becuase 2 of the people we started the company with are not going to be with us anymore and were adding another.

      Also with our company we are (or will be) paid by commission if/when something closes. The check would be made out to our company name and distributed to each of us how we have decided.
      I am not a licensed agent and I dont do any negotiating or work that only licensed agents should do like negotiating or dealing with buyers/sellers but I do the due dillegence, run our website, work on Fee agreements, NCNDs locate buyers/sellers etc and basically assist my partner with whatever she needs. She is the licensed Real Estate Agent and we are bringing in her Broker to our company for a very small % because supposedly she has to be part of the company so our company is working legally. (She doesnt actually do anything though)

      That brings me to another question if anyone happens to know. Am I even able to be paid if something closes since RE Agents are not supposed to pay or share commissions with unlicensed people? She says that I would be considered her Assistant and its ok, but I wanted to make sure.

      I know I should be consulting an account and attorney for all of this but I do have any right now nor the money to pay one to help me figure this mess out. Hopefully all of this makes sense, Thank you so much again for any advice you can give. It is appreciated greatly!!

       

       

       

       

       

       

       

        • Re: In desperate need of advice
          LUCKIEST Guide
          Sunflower, Welcome to this web site. Quite a story and yes your last paragraph say it all.
          You know you should be consulting an account and attorney. Every business should have
          Both an Accountant and an Attorney. It is the cost of doing business and will also save you
          tax problems and tax dollars with the IRS. Pay now, or pay MORE latter.
          LUCKIEST
          • Re: In desperate need of advice
            dublincpa Scout
            It appears to be too late by the timeline in your post. If not, email me at dublincpa@gmail.com and give me your number. I have some time in the car today and I will do my best while I am driving.

            I am still having trouble getting past $2B not providing enough money to pay for legal, tax and other advice, but I am still willing to hear you out.

            Good Luck.
              • Re: In desperate need of advice
                sunflower Newbie
                Thank you DublinCPA, I will be calling you after I get the kids off to school.

                For anyone else who is interested in why I dont have the money right now, reason is yes we are working on deals this large and have the contacts etc but we havent actually "closed" on anything...

                Also for anyone who has not responded because of the fact you shouldnt give advice like this unless you are an attorney/cpa: What Im looking for is just some simple answers of what you all "think" would be best for us given our circumstances. I'm not taking your advice under the impression that you are providing the services of a licensed Attorney/CPA.

                I could be jumping the gun again because these deals could very well fall through just like the others have. Our knowledge is in Real Estate not business/taxes and the person we had set up our S Corp in TX in the first place didnt know what they were doing or if it was the best thing for us. I just want to make sure it is or change it before its too late. (If its not already)

                The main thing we want to avoid if possible is double taxation and of course we want the privacy/protections the S Corp or LLC offers.

                So thanks again for hearing me out, I appreciate it!

                  • Re: In desperate need of advice
                    Lighthouse24 Ranger

                    I wasn't sure this was a legitimate question (given the contrast between the "two Billion dollar deals" and "no money for professional advice"). Even so, I'm just waiting for a plane right now and you specifically asked what non-pros might think, so here's my two-cents worth:

                    An LLC would provide the limited liability you want, and offer flexible tax treatment (profits could be taxed like a corporate entity or as a "pass-through" entity -- you elect which). So you might choose the corporate option in order to save money by funneling profits back into the business tax-free, or choose the pass-through option to avoid double taxation -- just depends on your goal. An LLC also lets you allocate the profits any way you want, which might be an advantage in your case. Although some states have an annual filing fee that's based on your profits (which could eat your lunch on a billion dollar deal), I'm pretty sure that neither Nevada nor Texas do.

                    The main downside to an LLC (in my mind) is that if you plan to build the business (seek outside investors, offer profit sharing, bring children into the enterprise, etc.), it can get "messier" with an LLC than it might be with a corporation.

                    I hope you find the right solution for your situation. Best wishes.
                    1 of 1 people found this helpful
                      • Re: In desperate need of advice
                        sunflower Newbie
                        Thank you Lighthouse24

                        I guess I shouldnt have mentioned the size of the deals we are working on, I think that has confused things. We are not actaully going to make 2B. We will be paid a commission, just a % for each deal. Still a very good chunk of change but we do not get any money until it close, if it does.

                        Now in regards to TX I found this for Franchise Tax:
                        Greater of .25% (.0025) per year of privilege period of net taxable capital or 4.5% (.0450) of net taxable earned surplus. For the initial report, the net taxable capital rate is prorated over the initial period.
                        From here: http://www.window.state.tx.us/taxinfo/taxrates.html

                        So I dont see why we just had to pay them $100 since we didnt make anything last year unless they have a set minimum you have to pay regardless of income.

                        So I think thats what you mentioned about an "annual filing fee that's based on your profits" or is there another one I dont know about?

                        Nevada (as far as I know) doesnt have a franchise tax

                        and when I searched for corporate tax rates for Nevada and Texas I found this:
                        http://www.taxadmin.org/fta/rate/corp_inc.html

                        Nevada nor Texas are in that table so that makes me think neither one has Corporate Taxes? Please someone correct me if Im wrong.

                        So far it seems to me the better option for us would be to set up the LLC in NV instead of keeping the S Corp in TX but I would still like to hear opinions and hear of any other taxes/annual fees I dont know about yet.

                        Oh and we also have no plans to seek outside investors, offer profit sharing, bring children into the enterprise etc.

                        We also finally have sellers interested in my partner being their Representating Agent to sell their properties. She has a meeting at the end of this month to set that up. Its my job to figure all this out. So thanks again!
                          • Re: In desperate need of advice
                            Lighthouse24 Ranger

                            For reasons indicated previously, I'd think an LLC in either state would be preferable to an S Corp for your situation (and you're correct, neither TX nor NV have a corporate income tax -- I have businesses in each). As far as the franchise tax in Texas, my understanding is that you must file a report each year, but if your business revenue is less than $300K, you don't pay any tax (of course, $300K is just a tiny percentage of a billion dollars, so NV may be better for you in that regard since it has no franchise tax at all). FYI, there's a revised TX franchise tax calculator here:

                             

                            http://www.window.state.tx.us/taxinfo/franchise/ft_revised.html
                    • Re: In desperate need of advice
                      Bobby.Kolev Newbie
                      That was fun to read...boy, someone working on deals for 1B and not knowing the difference between S-corp and C-corp...just ready to close on a huge deal but can't afford 1 hour advice...

                      My oh my...

                      By 2009, just look around to see where such people brought us to.

                      And they continue to do so!