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re: Looking for Experience Buying Office Space for Small Business
Posted on 8/21/19 at 8:27 pm to OleWarSkuleAlum
Posted on 8/21/19 at 8:27 pm to OleWarSkuleAlum
Well she’s in individual so she pays herself everything she makes but keeps a certain amount of cash that would cover 3 months expenses in the business account. Is that bad? It’s a small business so we just do our own taxes.
1
Posted on 8/21/19 at 9:02 pm to BeerMoney
You really don’t want to mix personal and business monies. But you said only $70,000 so it is very possible you could get some sort of loan with a personal guarantee but that’s through the business.
Posted on 8/21/19 at 10:10 pm to baldona
quote:
Florida requires a 6%ish commercial lease sales tax. That along with forming the new LLC costs, additional CPA costs, etc. made placing the office in an LLC outside of my business not worth it financially.
I don't do much practice in Florida. So I'm really not an expert when it comes to LLC compliance costs in that state. I'll take your word for it.
We do this all the time in LA with single-owner businesses.
1) Create an LLC with one member. Initial cost to draft the paperwork and file with the state, couple hundred bucks.
2) Because the LLC has one member, it's a disregarded entity for federal tax purposes. Because it rents out a building that it owns, all the income / expenses of the LLC (including depreciation) are reported on Form 1040, Schedule E, Page 1.
3) Pay an annual LLC fee of $25 to the state
4) LLCs are not subject to franchise tax in most cases, including these situations.
quote:
ETA: The reason being was the building would have no "income". You would only pay yourself enough rent to cover the bills. So you would miss out on some deprecation ability.
You would claim the depreciation on Sch E, Page 1. Depending on your overall tax picture, you might end up with some suspended losses. You would need to discuss this with your CPA.
quote:
Also, I talked to an attorney about this. Depending on your type of business you likely don't need much protection for the building. We are only talking $70k not $1 mil. But unless the OP is working a dangerous job in the office like manufacturing, then the chances of being sued for the building is incredibly small.
The issue isn't so much having a lawsuit against the building, it's a lawsuit against the business.
If your operating business gets sued and the building is in the same LLC, you could be forced to sell the building to pay the lawsuit.
If the building is in a seperate LLC, then if the business is sued, the plantiff can only go after the assets of the LLC being sued (the operating business) and can't touch the building / force you to sell it to pay off a judgement.
Posted on 8/21/19 at 10:11 pm to BeerMoney
quote:
How do you take $10k from our personal account and put it in to the LLC business account? We’ve never actually had to put personal cash in to the business so I don’t know if there’s something special behind doing that.
You write a check for $10,000 from your personal account to the business account. It's called a "capital contribution" and is an addition to the owner's equity of the business.
Posted on 8/21/19 at 10:16 pm to baldona
quote:
You really don’t want to mix personal and business monies. But you said only $70,000 so it is very possible you could get some sort of loan with a personal guarantee but that’s through the business.
Given the info provided by the OP, I would say there is a 99.999 percent chance the bank is going to want a personal guarantee on that loan.
I just had a situation with a 40-something year old business that grossed 10M a year in revenue and nets close to 1M a year. 2 Owners, one bought out the other by having the business redeem the departing owner. Got the cash by mortaging 3 million bucks on the buildings owned by the business and related entities. Talked to 4 different banks, all wanted a personal guarantee from the surviving owner.
Posted on 8/21/19 at 10:18 pm to eng08
quote:
I know several people that do that. They bought the building for their business but only needed 2/4 offices. Then they share reception/common areas and lease out the other offices.
We sublease from a guy in a similar situation. Great arrangement for everyone involved.
Posted on 8/22/19 at 7:32 am to LSUFanHouston
quote:
We do this all the time in LA with single-owner businesses.
1) Create an LLC with one member. Initial cost to draft the paperwork and file with the state, couple hundred bucks.
I’m not a lawyer, but I’ve been advised by lawyers there’s very very limited protections for single member LLC’s. You can’t simply create an LLC and have complete protections from your own work. There has to be some sort of separation in the transaction, like if your employee screws up.
She is a single member owner of the business and a single member owner of the building. If she had another member of either it would help.
She can get a ton of insurance for $500. Likely a $2 mil umbrella policy or more on her building insurance. In my situation with the state sales tax on commercial rentals I would have had to pay $2,000 in sales tax on my $30,000/ year I would have had to pay my LLC to rent it. Add another $500 or so for accounting, LLc, etc costs and it just made no sense.
Everyone should certainly consult their own local peeps on this. This is just what I found.
This post was edited on 8/22/19 at 7:35 am
Posted on 8/22/19 at 10:50 am to baldona
quote:
I’m not a lawyer, but I’ve been advised by lawyers there’s very very limited protections for single member LLC’s. You can’t simply create an LLC and have complete protections from your own work. There has to be some sort of separation in the transaction, like if your employee screws up.
Every state is different when it comes to LLC protection. Maybe LA offers more than FL. You do need to make sure you respect the fact that's two different businesses. So that means two sets of books, two bank accounts, actually transferring money from the business account to the building account and then using the building account to pay the mortgage, etc.
Putting the building into a new LLC also helps if down the road she wants to sell the business but not the building.
quote:
In my situation with the state sales tax on commercial rentals I would have had to pay $2,000 in sales tax on my $30,000/ year I would have had to pay my LLC to rent it. Add another $500 or so for accounting, LLc, etc costs and it just made no sense.
This is a great point. We can answer questions on here to give general thoughts, but every situation is different, and you need to apply your own specific facts. I would agree that in your situation as described, an LLC for the building would not make any sense.
Posted on 8/26/19 at 12:21 pm to Cousin
quote:
I own an office building in BR off Justice Ave. I "house hacked" the office and have all four of the individual rooms leased. It's working for me.
How do you go about finding tenants for individual rooms within the building? Or do you have separate suites?
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