Updated January 2018
Have you been considering incorporation? Like many business owners, you’ve probably thought about it. And why not? After all, as a landlord, you have clients, or I should say tenants, and you are providing a service. Incorporating your business can have plenty of benefits, but first, let’s take a look at the definition of incorporation.
What is incorporation?
Incorporation creates a legal entity around your business. It separates your personal income and assets from your rental property income and assets. By incorporating, you generally also protect yourself in the event the business encounters legal trouble or incurs any debt.
If you are thinking about incorporating your business, start by asking a lawyer. They can help you make sure that you’re doing everything that is needed in order to protect yourself and your business.
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Are you still on the fence about incorporating? Let’s take a look at the pros.
Limited liability protection – If you failed to incorporate and something happened to a visitor or a tenant on your property, you, as the business owner would be held personally liable. This could lead to incurring a lot of debt or even worse —bankruptcy. As previously stated, by incorporating your business, your personal assets are treated separately from those of your business. In general, this means the company would be held liable and not you personally.
Taxes – Collecting rent on your property means an additional source of income on your taxes, and this can place you in a higher tax bracket. Depending on the entity, you could also save on self-employment taxes and receive added perks from business tax deductions. It is important to talk to a tax lawyer or accountant to understand how incorporating would impact your taxes specifically.
Are you ready to incorporate? Here is how.
LLCs are the most popular choice of entity formation for landlords. At Rocket Lawyer, we can help you incorporate, file your paperwork, and follow up with you and the state throughout the process. It’s actually a relatively quick process. Although, fees and wait times for incorporation do vary from state to state.
Once you have a legal business in the eyes of the state, next, you’ll transfer the title of your property or properties to the legal entity. This means the legal entity “owns” your property now, even if you yourself might be the only member of the entity. You’ll have a small amount of paperwork to keep your new company in good standing—a small task with massive benefits.
Incorporating a rental property business can be very beneficial to landlords, although it’s not a requirement. By incorporating, you can protect your personal assets and income with the added bonus of tax benefits along the way. If you’d like to incorporate or get more information about how it works, please check out our incorporation center.