As 2018 rolled in with its new tax laws, favoring corporations, I decided it was time for me to become a corporation. My financial services business would stay as a sole proprietorship but it was time for me to make my side thing, real estate investing, into a main thing.
Choosing A Corporate Structure
The first thing I needed to do was to decide on what sort of corporate structure to use: LLC, S-Corp, or C-Corp?
Looking at it from a taxation viewpoint, an S-Corp is a pass-through entity. That means that all of the revenue is treated as regular income to the owner and is reported that way on the taxes.
With a C-Corp, the revenue comes in as income to the corporation and is taxed at the lower corporate tax rate. Money that I paid myself as wages (W2 income) would be taxed to me as income and I would pay social security taxes as well as income tax. Then the corporation can write off those wages as tax deductions. Money that I paid myself as dividends, I would pay a lower dividend tax rate and avoid the social security taxes, but the corporation would not get the tax deduction. If you are trying to build up capital within your corporation, then this would be the way to go.
An LLC can choose to be taxed as either an S-Corp or a C-Corp – and can change that determination from year to year. For this reason, I decided to go with the LLC.
Where to File?
After doing a little research, I decided to file my LLC in Wyoming. Why Wyoming? Well, it is a lot less expensive to file there than it is in California. I currently live in California but will probably not be doing any real estate investing in California. Wyoming has no state income tax and no business tax. They also have better privacy laws there.
There is a lot of paperwork to do when forming a corporation. Lots of paperwork is not my thing, so I went online and found a company that would do my filing, apply for my EIN, and take care of the mounds of paperwork, then send it all to me, along with a binder and a corporate seal for a very reasonable fee. It was surprisingly easy and they did it in a couple of days! The last time I formed an LLC in Los Angeles, it took months!
Naming the Business
I was excited to get my business started, but the first page of the LLC application was asking for the business name. Hmmmm. I guess I need one. Asking friends and colleagues, I gathered quite a few clever suggestions; like, House2Home or Turnkey Properties. However, upon further consideration, I realized that if I am going to build a multi-million dollar business that might be sold one day, I should skip the cleverness and go for a simpler name that inspires me. That is why I chose Bamboo Properties. Bamboo is a very resilient plant and a strong material for building. It grows fast and is hardy. It is a symbol of good fortune. Adding the word, Properties, makes it fairly clear that this is a company dealing with real estate.
Okay, got my business named; got my corporation formed; I’m ready for business!
