But I'm a Realtor and I already have a corporation

This statement is typically followed by the question, "why can't I get paid real estate commissions through my existing corporation?"

We addressed the issue of fictitious names in an earlier post. The State of Arizona will not allow you to use a fictitious name for your PLLC (Professional Limited Liability Company).

Creative agents...or ones who are frustrated that they spent money to set up their business entity the wrong way...will wonder why they can't just wash their 1099 real estate commission income earnings through the corporation they've already set up.

Creative? Yes. Good idea? NO. Here's why. Your broker is going to issue a 1099 under your social security number; by law your broker can't pay a LLC or Corporation with a fictitious name. This sets up a paper trail for the IRS. Eventually the IRS is going to want to know why there are reported earnings with a tax return to match.

As my favorite accountant Roger Lamberson says, "just because you can do it, doesn't mean you're going to get away with it if the IRS audits you."

So, left with the choice of scrapping the corporation they can't use, throwing their arms up in the air in frustration, or risking an audit by the IRS, many Realtors are turning to refiling themselves the right way as a PLLC.

True, it will cost you $279 if you use Reliable LLC Filings, LLC to do the filing and publishing for you but you have comfort in knowing that it will have been done right. Our cost of $279 seems a small price to pay to save money on taxes and avoid an audit.

You will also have comfort in the fact that we know that you need a PLLC and not an LLC in Arizona, we know that you can't use a fictitious name and we know exactly what verbiage needs to be on your Articles of Organization.

Reliable LLC Filings, LLC can help with the filing but we can't help with the tax advice. To reach Roger Lamberson (accountant extraordinaire) please call me him directly at 480-220-4111 or roger@lambersonassociates.com.

Reliable LLC Filings, LLC does not dispense legal or tax advice. For more information on your particular situation, please consult Roger Lamberson or your own tax professional.

LLC avoids double taxation trap of C-Corps

Have you been considering incorporating your small business or self-employment activity? The advantages are many! To begin with, you will be protecting yourself from a potential business ending lawsuit. Forming a corporation is the first step on the path known as "asset protection;" you are moving from the world of unlimited liability to the world of limited liability. From a tax standpoint, there are both advantages and disadvantages to incorporating. Yes, forming a corporation can either reduce your taxes or increase your taxes, depending on what type of corporation you create.

There are two main types of corporate entities: "C" Corporations and "S" Corporations -- and which type you choose can make all the difference in the world of taxes. NOTE: The question of "C" Corp vs. "S" Corp has no effect on the asset protection provided by your corporation. This is a tax issue, not a legal issue. A "C" Corporation can lead you into a tax trap known as "double taxation." Yes, income from a "C" Corporation can actually be taxed twice -- once when it's earned on the corporate level and again when it's paid to you, the shareholder, in dividends.

There are several ways to avoid double taxation. Often the easiest way is to tell the IRS that you choose to be an "S" Corp instead of a "C" Corp. The profits of an "S" Corp are not taxable to the corporation; instead, those profits are reported directly on the shareholder's personal income tax return and are therefore only taxed once. And once is enough, don't you think! [Note from Reliable LLC Filings: See our previous article on how an Arizona LLC gets the benefit of filing taxes as an S-Corp without all the formality of being one. This type of business structure also help avoid the double taxation trap.]

Of course, any article on choice of entity must contain the old disclaimer, "Consult your tax professional!" I am not prescribing a one-size-fits-all approach to this issue. But for many small biz owners and self-employed folks, the "S" Corporation is a good fit because it provides protection from personal liability and avoids the nasty tax trap of double taxation -- two great benefits worth checking into.

Should you decide that the "S" Corporation is the right fit, you must inform the IRS that your corporation is choosing "S" Corporation status by filing Form 2553, which is, in effect, an application to become an "S" Corporation. IMPORTANT: If you incorporate and do not file Form 2553, you are automatically defaulted to "C" Corporation status by the IRS.

There are critical rules regarding how and when to file Form 2553, so be sure to read the instructions carefully, or check with your tax pro. Failure to file Form 2553 on time or filing Form 2553 incorrectly results in a rejection of your corporation's "S" Corp application, and the corporation is then by default treated as a "C" Corp, subject to double taxation, the very trap you were trying to avoid.

About the Writer
Wayne M. Davies is author of 3 tax-slashing eBooks for small business owners and the self-employed. For a free copy of Wayne's 25-page
report, "How To Instantly Double Your Deductions" visit http://www.yousaveontaxes.com./