You could save thousands of dollars by either forming your new entity or dissolving unused entities between now and December 31, 2015.
1. 1031 FLEXIBILITY. If you currently hold property in an LLC with one or more “partners”, but want the flexibility, when you sell the property, to be able to go your separate ways [for example, you may want to do a 1031 exchange while your partner(s) want to cash out], then you need to convert your LLC into a tenancy in common ASAP (generally, at least one year before the sale and preferably in a PRIOR TAX YEAR; that means, if you think there’s any possibility you will sell one of your LLC-owned real estate investments in 2016, then you MUST take care of this conversion before 12/31/15). If you do that conversion and still want the asset protection benefits of an LLC, you need to form a new LLC to hold your TIC interest.
2. IMMEDIATE TAX SAVINGS. Sec. 195 of the IRC gives you a tax deduction of UP TO $5,000 of start up expenses that you spend before December 31, 2015. So, if you’re thinking about forming a new entity to own your real estate, you could save money if you form it this year.
3. AVOID DELAYS. Generally, Secretary of State offices are FLOODED with new filings at the beginning of January. Time frames could be longer and that means your deal may get delayed. The best way to avoid that delay, and the hundreds of dollars of additional cost involved in having to pay for an expedited filing, is to form your entity NOW.
4. HOW TO SAVE $800 PER ENTITY ON YOUR UNUSED CORPORATIONS AND LLCs: Do you no longer use any of your LLCs? If you don’t dissolve those unused entities before December 31 of this year, they’ll cost you $800 next year in the annual minimum franchise tax, even if you no longer operate those companies. This is your final opportunity to dissolve unnecessary or unused entities this calendar year. Delay the dissolution by even a week and it will probably be too late to complete this process this year, meaning the Franchise Tax Board will assess another $800 against the entity.
Now is a great time to stop procrastinating and clean up your business entities. Contact us today for assistance with this or any other legal matter. But hurry! Year-end crunches make delays risky. For more information about this topic, contact Jeff Lerman at 415-454-0455 x234 or jeff@lermanlaw.com.
