The abbreviation “LLC” stands for limited liability company. The name refers to one of the primary benefits of this business entity type—LLCs allow business owners to keep their personal assets separate from those of the company. This effectively limits their own liability when it comes to company debts and responsibilities.
In the United States, a limited liability company is a business entity type that combines the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation, creating the best of both worlds for business owners. LLCs have rapidly become one of the most popular business structures for new and small businesses, largely because they are considered to be simpler and more flexible than a corporation.
When you form an LLC, your business becomes its own legal entity, with separate debts and legal matters. However, LLCs are still tied to your personal taxes.
Transferring property to an LLC can limit your personal liability if someone is injured on the property and files a lawsuit against the property owner.
Putting property in an LLC is a common strategy for new businesses, landlords, and real estate investors. It’s not a difficult process, but it’s important to document the transaction and consider the tax consequences.
You might put property into an LLC for two main reasons:
Transferring real estate to an LLC is a common asset protection strategy for landlords. First, you’ll need to form an LLC by filing articles of organization with your state’s business formation agency.
If there’s a mortgage on the property, contact your lender to find out about restrictions on transfers and get approval for a transfer to your LLC. It’s important to realize that transferring property to an LLC does not relieve you of personal responsibility for paying the mortgage.
Next, get a form for a warranty or quitclaim deed that’s valid in your state, or have a lawyer prepare a deed for you. When you buy real estate from someone else, you’ll usually get a warranty deed that guarantees the title to the property is good. But many people use a quitclaim deed to transfer property to their LLC. A quitclaim deed simply says that you’re passing whatever interest you own in the property to the LLC.
A deed must be signed, and it may need to be witnessed or notarized to be valid, depending on your state. After it’s signed, take it to the city or county agency that handles real estate records so it can be recorded.
Once the transaction is complete, you can amend your lease to say that the LLC is now the landlord. Be sure to establish a bank account for the LLC and handle all income and expenses on your rental property through the LLC account.
If you’re starting a new business, you’ll probably put some of your own money into it. You may also transfer personal property like office equipment, tools, or vehicles to the business.
But transferring property to the business isn’t as simple as moving money around or taking your printer to your new office. To avoid tax problems and keep your company books in good order, you need to properly document the transaction. Follow these steps:
If you’re not familiar with business accounting, it’s a good idea to have an accountant or business lawyer help you properly document asset transfers and startup costs.
Due Date: During six-month period ending on last day of anniversary month of incorporation or qualification.
Filing Fee: $20
Important: The initial Statement of Information filing is due within 90 days of the entity formation date.
Franchise Tax Fee: $800 (minimum)
$800 payment for the LLC Franchise Tax is due by 15th day of the 4th month after your LLC is filed. The month your LLC is filed counts as Month 1, regardless if you file on the 1st of the month, the last of the month, or any day of the month, really. This means that if you were to file your LLC on March 22nd, then you must pay the $800 fee no later than June 15th (in this example, March is Month 1, April is Month 2, May is Month 3, and June is Month 4). Then, every year after your first payment $800 LLC Franchise Tax will be due by April 15th. You pay the $800 LLC Franchise Tax using Form 3522 called the LLC Tax Voucher.
(We do not assist in the filing of the Franchise Tax Report)
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