So you've decided to become a Real Estate investor and you are ready to make money. You are fired up about your financial future and are ready to begin Finding, Fixing and Flipping your properties. Well let me share with you some important issues when it comes to preparing your business for potential problems.
Before you dive into any business, you want to take time and learn about the tax laws within your state. There are plenty of books and websites that can teach you about tax laws and since they change so frequently, you can also ask members of your "A-Team", such as your Attorney and Accountant. They will help you to steer clear of legal and tax woes.
Decide your company's legal status- In creating your business, you will either form one of the following:
- A sole proprietorship
- A corporation
- A Limited Liability Corporation (LLC), or a partnership
- Or whether you will complete your business transactions using a joint venture
The next step is to have your lawyer draft the proper papers and file them to establish your business.
Prevent Tax Problems- When becoming a Real Estate investor, you can become so focused on making the money that you forget one key part in your entire business. THE IRS! It is wise to consult with your tax advisor and be sure to pay all taxes and pay them on time! Trying to cheat the government is not worth losing your entire business and/or going to jail.
Keeping the Books- Once your business starts to grow and you begin to make large amounts of money, it is best not to attempt to maintain your own record/books. This task can be tedious and time consuming and if you are not great with numbers and figures, you could end up making a costly mistake. This is where your Accountant comes in. Your job is to Find, Fix and Flip properties, so let your Accountant handle the figures. Also, you don't want any trouble when it's time to file taxes. Nobody likes being audited by the IRS!
Also keep in mind that the more money you earn in your Real Estate business, the more taxes you will have to pay. But don't worry, taxes are just a small price to pay for building your own empire!
Be a Responsible Employer- Once your business starts to grow and you start to hire employees, you will have new tax obligations. As an employer, the government requires you to pay withholding taxes, as well as money for unemployment and worker's compensation. You must file a W-2 form for every employee who works for you. If you are not familiar with employment taxes, it's a good idea to consult with your Accountant to learn this information. Also, NEVER pay an employee under the table. This can create problems and issues with the IRS. In order for your business to be successful, you want to follow all the rules. You have worked so hard to grow your empire and you don't want to risk losing your business!
These are just some of the things to think about when starting your business and preventing problems that can cost you. Remember, this business is your key to financial freedom so follow all the rules when it comes to the IRS!
Sincerely,
Annetta Powell
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