Whether it be just a small amount of rental properties or a full sized property management company, the smartest thing you can do to save your assets is to incorporate them.
How to incorporate a property
Incorporation is a very large step to take and should always involve a lawyer to make certain you are doing everything correctly with all of the correct and accurate paperwork to protect your business.
The first thing you will want to do is set up a corporation; LLC’s are the best and most popular formation for property owners and landlords. Although it may sound a little complicated, it is actually a rather simple process to get through. It is slightly more expensive than just being the sole proprietor, it can help ease any fears about protecting your property from bankruptcy in the future if problems arise. While the wait time and filing fees will vary from state to state, the wait time in between filing and becoming an actual business is never too overly long.
Once your state recognizes your company as a legal business you can then transfer your properties into your corporation. Even if you are the only member of your corporation, this means that your corporation now ‘owns’ the properties. Although there is a small amount of extra paperwork involved to stay within good standing with the state, it is worth the extra work to keep the benefits involved. But should you incorporate?
Advantages of Incorporation
There are two main advantages after you’ve incorporated your properties into your new business:
By allowing your business to collect rent and paying yourself a salary through the business, you can control your tax payments better and also enjoy being placed in the tax bracket you’d like to be in. Also, since this is now an official business, you can write off any kind of work or replacements to your properties as a tax write off. When you incorporate, there are a lot of different tax benefits that can help offset some of your yearly expenses.
Limited Liability Protection
Having a business/corporation allows you to keep your business and personal assets separate. In the case in which you have not incorporated your properties, you can be held liable for any unfortunate issues that may arise on one of your properties and could end up in a serious amount of debt or other legal troubles. Having your properties incorporated means that your business will be held responsible instead of you personally.
While you don’t necessarily need to have your business incorporated to rent properties, it is a great and far safer advantage for landlords to protect their assets and receive some rather important tax benefits.