Are There Tax Advantages to Having an LLC?

This morning I asked my CPA, Vince Murrietta, whether there are tax advantages for me, a realtor, in forming a limited liability corporation (LLC). His response was immediate, and I think it is of so much value that with his permission, I'm sharing it. Here's what he says:

"The answer is No, there are no tax advantages to having an LLC. The reason is because deductions are not created by the entity you operate a business under. Expenses are deductible based on the purpose of the expense. If you spend a dime and it is for the purpose of promoting, maintaining, supporting the business you operate, then it is deductible whether you are an LLC or not. The question that you ask yourself about whether an item is deductible when you own a business is "Why did I spend that dime?". If it is for a business reason, then it is deductible regardless of the entity. Any expense, when the purpose is for a business reason, is always deductible.

"The challenge is that there are professionals telling real estate agents that having an LLC will create more deductions. This premise is totally false. Home office expenses are deductible if they are for a direct purpose, i.e. a fax machine, a separate business line, maybe a file cabinet and a desk. These are deductible because the sole purpose for the expenses is to support your real estate business. The indirect home office expenses, i.e. the interest on your mortgage, utilities etc. are not deductible because as a home owner, those expenses would exist whether you had a real estate license or not. The other main reason the indirect home office expenses are not deductible is because the real estate brokerage where you hang your license is usually required to provide office space for the agents. The regulations in the IRS code state the home office deduction is allowable if the home office is used "exclusively." Real estate agents who hang their license in a brokers' office do not use their home office "exclusively." When it comes to automobile expenses, I believe that an agent can deduct from the minute he leaves his home because of the nature of the business. Most agents go to the office for meetings etc. All of their work is on the phone and on the road. You do not need a home office (LLC) to support this expense.

"There is no 'TAX ADVANTAGE TO AN LLC'; however, there are asset protection advantages that should be considered. Let me know if you have any questions."

Thanks, Vince. For more information, contact Vincent M. Murrietta, CPA at 602.241.3306 or vince@mycpataxes.com. Vince's office is in Phoenix, AZ.