Should I create a separate LLC for my real estate and education business?

QUESTION OF THE MONTH: AUGUST 2019

Possibly.

Let's take a step back and review what a Limited Liability Company (LLC) is.

An LLC is an entity created by state statute. Depending on elections made by the LLC and the number of members, the IRS will treat an LLC either as a corporation, partnership, or as part of the owner’s tax return (a disregarded entity). The LLC provides limited liability protection of the owner's assets in the event of lawsuit or debt.

The reason you might want to create a separate LLC for each business is to limit the assets liable in the event of a lawsuit or debt. For example, if you put all of your businesses into one LLC and a real estate creditor pursues your assets to collect on a debt, the assets in your education business could be subject to collection as well. However, if each business was placed into a separate LLC, then only the assets in the real estate business would be subject to the lawsuit.

Another option to consider is business liability insurance. The limited liability protection of an LLC might be too much protection or not enough protection for your business. For some businesses with slow financial growth, it is more cost-effective to cover the business with liability insurance rather than form an LLC. For other businesses with significant financial transactions and large investments, it is more cost-effective to have business liability insurance as well as incorporate as an LLC.

Please note, initial conversations regarding entity creation are often best discussed with an attorney. An attorney can let you know the legal requirements, options for asset protection, and filing requirements for your specific line of business. As a CPA, I can assist with tax filings, financial management and strategic tax advice for the entity determined under the counsel of your attorney.

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisers before engaging in any transaction.