If you’re investing in property in the Seattle or King Country area, then you may have the opportunity to create a company. Whether or not you should create that company is purely dependent upon how you are investing, what else you are doing, and whether or not you consider yourself a business. There are many pros and cons to operating as a business and whether you’re investing in Redmond, Issaquah, or Seattle itself, those issues remain the same.
Do I Have to Set Up as a Company?
First, you should check to see if you have to pay taxes as a company. If you make all or most of your money via investment, you might actually be frowned upon for not creating a company. For example, if you have a real estate license and buy and sell property, or buy a great deal of property, then you might need a business license. The State of Washington suggests that you should get a business license if you make more than $12,000 a year from your investment, if you do business under a name other than your full legal name, or if you sell or provide a taxable service. You should also get a business license if you plan on hiring full time employees rather than contractors, and should consider doing so within 90 days of making the hire. If you plan on hiring employees then you will also have to apply for a Federal Employee Identification Number as well.
Pros of Registering a Company
If you’re planning on creating a company for your Seattle real estate investment then you should consider that there are pros and cons. For example, some of the pros include that as a business, you get to take advantage of a number of things that come with your license. A business is able to get additional insurance for property, is able to protect business assets by setting up an LLC for each property, and can hire employees. You may also be able to get a tax number which means that you are exempt from paying taxes on items purchased for your property investment. Another consideration is that if you have been in business for more than two years and have a year’s worth of income then you can also consider an SBA (Small Business Administration) sponsored loan to help with future investments. You can also keep your personal property separate from your investments, meaning that if you end up in debt, your own home is safe.
Cons of Registering a Company
If a company is not filed correctly then it can be difficult. There are multiple different types of companies you might choose to file as including an LLC, Corp-C, Corp-S, or Inc. although most new businesses choose one of the first three. You can also file taxes as a sole proprietor, or as a group of investors, but both options have their pros and cons as well. Different companies are taxed in different ways, but for most real estate investors, the LLC is the most advantageous because it taxes the individual rather than the property. Being a company means paying taxes as a business rather than as an investor, which for many people means learning new tax rules, and sometimes paying more in tax.
There are many pros and cons to registering as a business in the state of Washington, but if possible, you should most likely talk to your lawyer or property manager as applicable. Depending on your situation you may or may not need a business.