Discussion:Business Entity Selection for Personal Investments

The owner is growing the assets and not taking regular distributions of income from them. Would the possibly lower tax rate of a corporation allow the money to compound faster? Assuming a great rate of return would that offset the disadvantages of double taxation when the owner takes distributions down the road?

Would all of the investments have to be liquidated, moved into the company, and then repurchased; or could the owner transfer them to the company as a loan? In the case a single-owner LLC could they just be moved into the name of the LLC?

Thank you

JR1 - So having the investments transfered into the LLC name would not count as a taxable sale?

Death&Taxes - The client is newly married without any children.

As IRSfixer said, C corp is a bad idea because of the capital gains tax, no break on a corp return, it's all taxed at corporate rates. And a single memeber LLC will have no tax advantage as it's a disregarded entity. A multi-member LLC taxed as a partnership or S-corp will flow through to the personal return. I see no tax advantage to doing this. Just a bigger tax preparation bill to save nothing in taxes.

I agree with you Kevin, but he did ask the question I answered in his second post.

I'm shocked by the laughter here regarding "the investments biting someone". The client has grown his assets to a sizable position and anyone who even walks by his house and trips on the sidewalk could sue him for everything he has, not to even mention lawsuits that might come about through his other business interests or even a car wreak. The same could happen to me and you as well. That's why we have limited liability entities in the first place. I just wish I knew more about which entities are best for which circumstances. Unfortunately, all the books out there on this topic do a decent job of describing what each entity is but fail miserably as describing which one is best for different scenarios.

Thanks for all the responses

However, placing your clients assets (stocks, currency and commodities) into an LLC, Corp. or LP will not insulate or protect those assets if your client is the owner of the entity. Ultimately, his interest in the holding company could be just as reachable as the individual brokerage accounts. There is no benefit to placing an asset into an entity, unless the asset itself could potential do harm and cause a lawsuit. That's why people have commented about "the investments biting someone."

Kevin and Irsfixer are correct in that insurance, most likely a large umbrella policy is the most appropriate strategy to protect your client's assets.

I do have clients that set up rental property in LLC's for the reason you stated, but in that case the LLC (rental) could possibly be sued, so from what I understand only the LLC assets would be at risk in that case.