Series LLCs Q & A


Diane Kennedy and I did a webinar recently on Series LLCs. You can see the replay for a short time over at www.ustaxaid.com/series. And check out our limited-time offer that incudes having a Series LLC formed for you, here: http://www.ustaxaid.com/shop/Series-LLC-Year-End-Special.html.

We had a bag full of questions and ran out of time. So this week all of my blog entries are going to deal with answering your questions from the webinar. And, of course, if anything you read this week brings on another question, ask away!

Can I have a Checkbook IRA Series LLC?

Question:         Can a Series LLC be used with a self directed IRA LLC to purchase real estate?

Answer:           In theory yes. There isn’t anything fundamentally different about a Series LLC that should prevent it from being used with a self-directed IRA. I’ve had clients experience difficulties with Cells, though. My suggestion would be to first talk with your IRA custodian. Be prepared to do some education. Take in your Series LLC documents, and maybe take in a printout of the state law section that deals with Series LLCs. My sense is that there’s no real reason to disapprove of the Parent LLC, at the very least, but it may be more troublesome to have just a Cell approved to be owned by your IRA.

Can I Set up a Series LLCs in Iowa if I Own Property in Another State?

Question:         I live in Iowa, but I have been buying real estate in Arizona. Is it better to form a Series LLC in Iowa or in another state?

Answer:           In your shoes, I would definitely set up a Series LLC in Iowa, rather than another state like Delaware or Nevada. You live in a state with Series LLC law, and that’s where you file your personal tax return. Going to Nevada or Delaware in this case is not going to give you any tax benefits. Two things you’ll need to remember:

  1. You will need to cross-register your Iowa Series LLC into Arizona, to give you legal standing in Arizona, so you can protect your properties; and
  2. You may need to file a personal tax return in Arizona to pay tax on the income you have generated in Arizona (but that should be happening now, so nothing new there).

Tennessee or Nevada for My Series LLC?

Question:         I’m starting a new small information marketing business for 2014 and live in TN. I was thinking of doing an LLC registering it in NV since they are known to be most favorable for small businesses, and I’m thinking I may leave TN in a couple of years. Is there any advantage for me to do a Series LLC?

Answer:           This is a great question! When you’ve got options on where you set up a Series LLC, how do you figure out which is best. For me, I look at taxes first. And in this case, the key here is a business that will be doing information marketing – which is a service activity. That means the business is probably going to want to make some kind of corporation tax election, to avoid having the income slammed with an extra 15.3% or more in self-employment tax.

Any time you are dealing with a corporation tax election though, you need to think about payroll. And where there is payroll, there is absolutely going to be income tax nexus for the business. Nexus means connection – in this case, the connection will be a requirement for the business to register in every state where there is payroll happening. So, the most economic answer here is to use Tennessee. Forming the business in Nevada won’t give you any benefits. In fact it will cost you money, as you’ll have to cross-register it into Tennessee anyway.

When and if you decide to move to a different state, that’s okay. Most states have a procedure where you can transfer a company from one jurisdiction to another. The exact mechanics will depend on where you’re going.

At Smart Business Incorporation, we specialize in helping investors and business owners develop structures to run their businesses, protect their assets and keep as much of their earnings as possible. If you want to know how to best structure your next business, visit our website or drop us an email at info@smartbusinessincorporation.com. We’ll be glad to help.

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