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Setting Up and Running Your Business: A Quick Guide for New LLC Owners

Hello, my name is Samir Bhatia with BW Group. We are a CPA firm specializing in small businesses and high-net-worth individuals, with a primary focus on real estate. You’re in the right place to get some crucial information on how to operate your business once your LLC is set up. Let’s jump right into it.

Planning is Key

Winston Churchill said it best: “He who fails to plan is planning to fail.” It’s crucial to create a plan to set your business up for success. When you visit our office, we divide your financial life into two categories: short-term (active and ordinary income) and long-term (passive income).

Short-Term vs. Long-Term Income

Short-Term and Active Income:

  • Real estate commissions
  • House flipping
  • Wholesaling deals
  • Product or service sales

We recommend setting up this side as an S corporation for tax purposes.

Long-Term and Passive Income:

  • Rentals
  • Interest
  • Dividends
  • Royalties

For passive income, consider a partnership LLC or a single-member LLC for better protection.

Getting Your Business in Order

Once your LLC is set up, the next steps are crucial:

  1. Open a Business Bank Account: Separate your personal finances from your business. This helps in protecting your personal assets.
  2. Get a Business Credit Card: Utilize this card to keep track of all business expenses and benefit from rewards.
  3. Deposit All Business Income: Use this account for all your business transactions to keep everything organized and easy to track.

Maximizing Deductions

Cell Phone Expenses: To deduct 100% of your cell phone bills, have a separate line for personal use. You can use a Google line for personal calls, which is free.

Health Insurance: Your health insurance should be a business benefit. However, don’t pay for medical bills with your business account. Treat medical expenses as out-of-pocket costs, just like you would with a W-2 job.

Managing Auto Expenses

We’ll cover this more in a separate class, but here are the basics:

  • Business Use: If you have a vehicle used 100% for business, deduct all related expenses.
  • Personal and Business Use: Keep personal and business expenses separate. Use one vehicle for personal use and another for business.

Proper Record-Keeping

Good records are crucial, especially for travel, meals, and entertainment. Here’s how to keep track:

  • Receipts for Business Meals: Use an app like Expensify or keep a detailed Outlook calendar.
  • Avoid Commingling Funds: Keep business and personal expenses separate. This prevents complications if audited.

Keep it Clean: Avoid Common Mistakes

Using business accounts for personal expenses can cause major issues if you’re audited. An IRS agent will scrutinize every transaction if they find personal expenses mixed with business ones. They may even revoke your S corporation status based on improper use of funds.

Takeaway

Ssetting up and maintaining a successful real estate business requires meticulous planning and disciplined financial management. By distinguishing between short-term active income and long-term passive income, choosing the right business structure, and keeping your personal and business finances separate, you can maximize your tax benefits and protect your assets. Implementing proper record-keeping practices and understanding the nuances of business expenses will further safeguard your business from potential IRS issues. 

At BW Group, we’re here to help you navigate these complexities and set your real estate ventures on the path to success. Remember, a well-planned strategy is the key to achieving your business goals.

Get started with Propelio and unlock all the tools you need to succeed in real estate. Sign up now for a 14-day FREE trial: Start Free Trial

Get started with Propelio and unlock all the tools you need to succeed in real estate. Sign up now for a 14-day FREE trial: Start Free Trial

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