[b]LLC in Texas and Franchise Tax[/b]

[firepro]

Does anyone have any suggestions on the best way to hold properties in Texas.  I presently hold all our properties in a Land Trust.  After going to Jack Miller Classes I am convinced that I should hold our properties in LLC'S especially subject To properties.  The problem is that in Texas You have to pay franchise tax.  Would it be possible to have an out of state LLC? Would this avoid the Texas franchise tax (there is something called foreign Corporation doing Business in Texas) if the properties were held in trust?  I have looked into Nevada LLC but can't figure out to handle the mail/Resident agent       nt.

[Admin]

firepro,
This thread might be of some use...
http://www.texasrealestateclub.com/forums/phpBB2/viewtopic.php?t=150

My understanding is that you definitely don't want to do biz in Texas as a foreign corp as the costs and regs will eat you up.  I'm sure at some point (large dollars), it might make more sense, but I know some who have gone that route and wish they hadn't. :hammer

[justin]

Up front, I would talk to a lawyer about the differences in liability protection between an LP and an LLC.

LP's are not subject to franchise taxes.  However, having an LP requires a general partner.  The general partner is exposed.  However, you can have an LLC be a 1% general partner in the LP, and thus only 1% of the income is subject to franchise taxes.  Typically, 1% LLCs don't get enough of the income to file a tax due TX Franchise Tax report.  However, you still have to file at least a No Tax Due report, but hey, no taxes.

Currently, companies that are subject to the TX Franchise tax can be exempt if they have less than $150,000 in gross receipts during the year.  You could also set up LLCs for each property, thus dividing the income and staying below $150k per year in each.

Hope this helps.

[Dretke]

Justin,

Thanks for the info.  I've been struggling with whether or not to set up an LLC before I buy any more properties.  I'm still on the fence, but I'm learning alot from you guys.

DeeDee

[StacyKellams]

Firepro,

Here's another thread where we talked about this.

http://www.texasrealestateclub.com/forums/phpBB2/viewtopic.php?t=128


Happy Investing,

Stacy

[StacyKellams]

Justin,

Great to have you contributing. It's good to have a CPA around to bounce ideas off of.

I know this guy who used to be a CPA, but every time I ask him a question he doesn't know the answer.  Do you know guy's like that?    

I've mentioned before that I have an LP with an LLC as a 2% GP. Under this structure which entity would you promote to the public as being your "business"? The LLC or the LP?

I have asked 6 different people (3 accountants and 3 lawyers) and every time I get a different answer.

The answers fall into 3 groups. 1 group say to promote the LP because the LP is the one doing all the business. That's my accountants answer.

The other group says to promote the LLC because I'm a partner in the LP and as a limited partner I shouldn't be doing any of the work or promoting the partnership. They also site the fact that technically I work for the LLC because it's the GP. That's the answer I get from most attorneys.

The other answer I got from an attorney is, it doesn't matter which entity you hold out to the public.

Then there was the one "expert" who is both an accountant and attorney who said "I think" you should be promoting the LLC. This guy lectures all over the country as a "Tax Expert" and that's the best he can give me.  

I keep asking the question because it's funny how people who are supposed to know this stuff don't really know the answer. It's kinda scary actually.

All you newbies don't let this stuff confuse you because the "experts" don't even know all this stuff. Well, they think they know, but then the next one you ask will give you a different answer.    :eyes

Thanks Justin!

Hope I didn't vent too much.  

Happy Investing,

Stacy

[akorelc]

Hi, guys:

I'm in the process of setting up a Nevada Corp. In a nutshell, the GP will be held by the Nevada C that will also hold the LLC. Income could be safely held in the LLC. Properties could be safely held in the GP. Nothing's traced back to the C. There are ways for the Nevada C to deal with the TX foreign filings. Get a good lawyer who understands this; mine's in NV. We happen to have family there.

[StacyKellams]

akorelc,

 I'm a little confused by your use of the term GP.  :eyes

GP stands for General Partner which implies the use of a partnership, either Limited or General. You didn't say anything about a partnership.

Corporations have officers and directors not General Partners (GP's). A Corp. can act as a GP (General Partner), but it can't have a GP. Only partnerships can have GP's.

LLC's don't have General Partners either. They have Members and Managers.

States like Nevada do have powerful benefits, but tax savings are typically not one of them unless you live AND work IN Nevada.


Happy Investing,

Stacy

[akorelc]

Yes, I do mean GP. A large package of properties (a small one I'm crunching numbers on right now is just shy of $1mil) with a group of investors is best done within an LP, and why would I want to let someone else be the GP? I've sold my fair share of LPs in my time, so I know how they work.

The advantage ito a Nevada C is n creating layers of protection for your assets against litigation and over-taxation. Trust me, I know first-hand about being taxed on income earned in another state as a non-resident! However, I also know about protection of assets. I'm not a lawyer and I don't want to even try to explain the intricacies of this rather complex issue; so I'm paying the big bucks to our attorney to deal with this and keep everything clean and above board.

I don't go into anything lightly and this was done with a good deal of research and discussion with specialists in this particular area, including one who happened to be in Wash. D.C. I did my time in corporate finance.