Archive for June, 2013|Monthly archive page
Rental Property Outside CA: LLC Options and Issues – Part I
Filed under: California, Rental Property | Tags: $800, Arizona, CA, California, corporate formalities, double taxation, Franchise Tax, liability protection, LLC, Nevada, New Mexico, rental property, Texas, Wyoming
Comments (1) Originally published in the Cedar Street Times
June 28, 2013
A lot of Californians find themselves with rental property outside the state at some point in their lives. Sometimes it is from a past life in another state, or from an inheritance when a parent passes away. Military folks often jog around the country collecting houses like refrigerator magnets from each state in which they have lived. There are also a lot of people that invest in rental properties in Nevada, New Mexico, Arizona, and Texas because you actually have a shot at a positive cash flow situation right out of the gates, unlike California. And then there is the Hawaiian contingency that buy investment properties that always need at least two to four weeks of maintenance work done by the owners each year – not sure if I want one of those with all that work – it’s funny, I never hear of clients having to go to Phoenix for a month in the summer to work on those properties.
Anyway, the question always arises about whether or not to form an entity such as a corporation or Limited Liability Company (LLC) to hold the real property. An LLC is generally the preferred vehicle to hold real property for many good reasons, including liability protection for your personal assets in the event you are sued, and the elimination of double taxation that can plague corporations. They also have less formalities to follow compared to a corporation and avoid some nasty pitfalls of corporate tax rates and structure that could cause a lot of pain upon sale of the property.
As a result, a lot of people these days do hold property in LLCs. Of course this comes at a price. If you create an LLC in California (or a corporation for that matter) to hold your property, and are therefore granted the privilege of doing business in California, you are also granted the privilege of paying California a minimum $800 franchise tax each year. You also have to pay someone like me to file another tax return every year, and you have to keep better books. Don’t forget you have to hire an attorney to set it up initially for another $1,500 to $3,000.
I would not recommend an online filing company or do-it-yourself approach, as you are not getting any legal advice and have no one keeping you on track with formalities which could completely blow the liability protections and the whole reason you went to all the effort in the first place. Correcting or trying to close ill-formed or mishandled entities can be a real pain as well.
So what if you form your LLC in another state such as Texas or Wyoming to hold your property? Many states have much lower or no annual LLC fee and they have simpler annual filing requirements. (You generally do not have to form the LLC in the state where the property is located.) Could you save some dollars by setting up your LLC in another state? In two weeks we will discuss California’s current position on non-California LLCs and some new rules that are just coming into play. If you have a non-California LLC, you do not want to miss the next installment.
Prior articles are republished on my website at www.tlongcpa.com/blog.
IRS Circular 230 Notice: To the extent this article concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law.
Travis H. Long, CPA is located at 706-B Forest Avenue, PG, 93950 and focuses on trust, estate, individual, and business taxation. He can be reached at 831-333-1041.
Your MyFTB Account
Filed under: California | Tags: 1099s, access, Account, adjustments, balance owed, California, credit cards, direct bank transfer, FTB, installment agreement, interest, MyFTB, online, pay your balance, payments and credits, Penalties, tax withholdings, www.ftb.ca.gov
Leave a comment Originally published in the Cedar Street Times
June 14, 2013
Clip this out and save it in your tax file…did you know you (or your authorized tax professional) can get easy, instant, online access to a wealth of information about your California tax account as an individual or a business?
One of the most common issues I use this for as a professional is to confirm estimated tax payments when a client is uncertain how much they paid throughout the year. This can often save a lot of time searching through bank statements or checkbooks. Of course, the best practice is to track the information yourself to make sure the Franchise Tax Board (FTB) posted it to your account, but sometimes life does not fit within a nice, square box. To the credit of the FTB, I have found they do a pretty good job of tracking estimates paid, however, so I feel it is pretty reliable.
You can also see the past four years of your wage and California tax withholdings reported to the FTB by your employers. This would be great if you misplaced a W-2 and could not get access to it for some reason. If the FTB issued any 1099s to you for tax refunds or interest income, you can see that information for the past three years as well. Another feature is the ability to look at a summary of the core information of your tax returns for the past ten years such as total tax liability, taxes withheld, payments and credits, plus any interest, penalties, or adjustments made on the account. The system will also tell you if you have any outstanding balances still owed from the past ten years.
Besides historical tax reporting information you also have the ability to perform a variety of functions. For instance, you can change your address and telephone number, or you can check on the current status of your refund. You can also pay your tax balance or make estimated payments via direct bank transfer, Western Union, or credit cards (a fee applies for credit card payments). So no filling out vouchers and making unnecessary trips to the post office, and you have instant confirmation that the funds have been credited.
There are also quick links to key information on topics like penalties, interest, common fees, etc., as well as links to common forms to fill out and mail in such as applying for an installment agreement if you owe tax. Hopefully, some of these other processes will become automated online in the future as well. Another nice feature is that you can sign up for e-mail reminders to pay your estimates, for example.
To gain access to this information, you can set up an account online at http://www.ftb.ca.gov. Look for the link to “Access MyFTB Account” and click “Register.”
As telephone hold times seem to get longer and longer, having access to more information online is definitely handy. There are a lot of areas I could criticize the FTB about, but I think this is definitely a positive service they are providing. It also functions pretty much like any other commercially designed site online. I only wish the IRS had something as user friendly! They do have an electronic system for tax professionals to gain access to information, but I think it was designed when dinosaurs roamed the earth.
Prior articles are republished on my website at www.tlongcpa.com/blog.
IRS Circular 230 Notice: To the extent this article concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law.
Travis H. Long, CPA is located at 706-B Forest Avenue, PG, 93950 and focuses on trust, estate, individual, and business taxation. He can be reached at 831-333-1041.
Travis H. Long, CPA, Inc. Blog 