Investing In Tax Liens with a LLC or Corporation

Investing In Tax Liens with a LLC or Corporation

– Hi, Clint Coons here with
Anderson Business Advisors, and in this video I’m going to discuss tax lien investing. All right, you want to get started in tax lien investing because you know the opportunities that are there, that you can get in for a very low amount, and you can actually reap huge rewards. But the question is how should you structure those investments? You know, because we’re looking at not only making money but also keeping more of what we earn. And the type of structure you choose for your tax lien investing can have a huge impact on that, not only from a tax side but also from an asset protection side. So if you’re a tax lien investor, the first thing you need to ask yourself is what type of income do you want to make from these investments? Now, forget the redeemed aspect of it. But I’m thinking long term if you actually get the property. Do you want to hold those properties? Do you want to flip those properties? Many times people just don’t have the right answer for that
’cause they don’t know. And so that even makes it
even more difficult to plan. So if you’re a tax lien investor, what I would tell you is that
if you need active income, so this would be the
real question we have, do you want active income? Now, why would I want active income? Well, maybe I need to show a greater W-2 so I look better to traditional lenders for deals I want to put together. Maybe I want to put some money aside in a Solo 401(k) so I can defer taxes. You know, whatever your motivation is, if you desire active income, that’s going to drive the
decision-making process. So if I need active income, then as an investor in tax liens, I’m going to create a
corp for my investing. I’m going to create a corporation. Now, this could be an LLC taxed as a corp, or it could be a traditional corporation. If you watch my other video
on LLC versus corporation for real estate investing, I discuss this in more detail. But if you want active income, so if I want active income, then I’m going to run my deals through my corporation. That’s where I’m going
to take my tax liens, tax deeds, right through here. And so if they get redeemed, then all the money flows into the corp. And then what I’ll do from there is I pay myself out a
salary with those proceeds. That’s W-2 income to me. And again, you’re going to
pay a little more in taxes, ’cause you have to pay
employment taxes on that. But there’s a reason why we’re doing this, because it’s about building
our business going forwards. And so you recognize you want that W-2. Well, maybe you don’t need that much W-2. So what you’re going to do instead is you’re going to throw
onto this a Solo 401(k). So now if I’m taking
out $18,000 in salary, I’m dumpin’ it into my Solo 401(k) so I’m not havin’ to pay taxes on it. And then I’m doin’ tax liens and deeds possibly out of there. How cool is that? Then you don’t have to
pay any tax on the money. So this is one way to do it if you want active income. Now, one other caveat here. If you obtain a property, all right, if you end up getting a
property off of one of these, ’cause they’re not redeemed, then the issue becomes what are you going to
do with that property? Well, first thing is is
that you need to know ahead of time whether or
not you intend to flip it or you want to keep it. Because if you want to keep it, then do not take title
in that corporation. Because the corporation
is only there for flips. If you want to keep it, then what you need to do is when you take title to that property, you should have a
limited liability company set up over here to own that real estate. And remember, I talk about this a lot, not only on my videos but also in our three-day tax and
asset protection workshop, the importance of having multiple LLCs to reduce your risk exposure. So if you’re going to take it, then move it over here and
take it title in an LLC. If you’re going to flip it, then you can keep it over in the corp, because flipping activity
is active income. Now, we talked about this being the primary motivating
factor initially for you. What happens if you don’t necessarily want active income and
you want to try to keep your investing as passive as possible? In that case, I would do
this through a LLC here if I want to make it passive. And I would have this
treated as a partnership, or I would make it a disregarded entity, disregarded for tax purposes. So then you’re down here. This is your LLC; you’re up here. You’re doing your tax liens
and stuff through here. So the money flows into here, and then it comes out to you. It’s going to come out as passive income. Unearned income is what we’re
looking for on our return. So we’re not going to
be able to contribute to the Solo 401(k) or anything like that. Great, that makes sense. You can do it this way. But if you’re obtaining these properties and you don’t want to keep ’em ’cause you don’t want to be a landlord, now it comes back to
the other problem again. You get a property here, and you want to just
turn around and sell it. Well, now we’re running the risk that you’re going to
get tagged as a dealer. So we don’t want to sell
properties out of this LLC. Only thing we want to do with this LLC is bring in the income
from the redemptions. Or if we’re going to
hold things long term, collect the property
here and then move it off to a different LLC, which is important. You never want to own a bunch
of properties in this LLC. This would just own the tax liens, deeds. You’re not going to take
the properties here. But if I want to flip, then what I’ll do, I will have a corporation
set up over here for my flip. So now you get pushed right
back in that active side. And in this case this corp
could be an S corp or C corp. I’d probably make it an S corp, because you want to keep as
much passive income as possible. If you wanted the active income, I would have made it a C corporation tax status up here. So with tax liens, I mean,
it is kind of complicated. There’s no doubt about it. And what really drives the structure is more from the tax side of it. What type of income do
you want to generate from your investing activity? And then we create the
structures around it. And so invariably, it
typically ends up being a two-tiered structure. There’s a corporation there,
and there’s an LLC there. And the difference between the two is what our motivations are. Are we going to make most of our offers, buy most of ’em in the LLC because we’re looking for passive income? Or our main motivation active income, so then we’ll buy everything
in the corporation and then just move ’em out if we’re going to keep ’em as holds. Tax liens investing, it’s important. Make sure you click on the link to get a strategy session set up if you’re a tax lien/tax deed investor so we can walk you through how to create the right
structure for your business. (upbeat instrumental music)

5 thoughts on “Investing In Tax Liens with a LLC or Corporation

  1. If you would like a FREE 30-minute consultation, you can request one here:

  2. Huge waste of time.

  3. Would this be the same for note investing vs tax lien investing?

  4. Hi, what's the proper entity for real estate wholesaling? LLC or C-corp? And do wholesalers run the risk of being labeled "dealers?" Thanks…

  5. Thank You!

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