Entity Cash Flow – Legally Mine

Legally Mine is dedicated to ensuring you get the maximum benefits from your legal structuring possible.  For someone who is properly set up the following is an explanation about how the cash flow would work from entity to entity.

Any entity with more than one owner will need at least one bank account and will need to file a tax return. The following information is designed to give basic information about those entities, how money comes in and goes out of them, and what types of income and deductions can be generated through them:

Your Practice (usually taxed as an S-Corp)- This is where you will take the bulk of your deductions, including some income shifting (through paying wages to your children or others) and rental of your home. The practice will write a check to you personally every time it uses your home for a meeting or other event. It will maintain a bank account, usually a checking account, which should only hold regular operating expenses in it for a couple of months. Everything else should be transferred either into an account in your safe asset FLP (for safe keeping) or as distributions to you as the owner.

Asset Management, LLC (usually taxed as a partnership)- This is the entity that serves as the general partner for any FLPs and owns your property LLCs or Land trusts for your properties (minus your primary residence). It will need to maintain a bank account, usually a simple checking account. It will likely hold funds in it sufficient to avoid any maintenance fees from the bank. It can receive management fees or rents from any rental properties you own. It can also receive money (although it does not have to) from your FLP(s) for its role as the general partner. If you are wanting to take deductions out of this entity for travel, rental of your home, or income shifting, it will need to generate income first through one of the previously-listed means. If it does not generate income, it usually cannot take deductions.

Safe Asset FLP– This is the entity that will hold your “safe” assets (i.e., bank accounts, gold, silver, investment accounts, artwork, jewelry, etc.). You will need to maintain at least one checking account in your personal name (or the name of your family trust) through which you will pay your everyday bills (gas, groceries, etc.). Anything beyond the amount needed to pay those bills should be transferred into an account within your Safe Asset FLP. This can be a savings account, money market account, checking account, or some other type of investment account, whatever works best for you. If the FLP will be holding funds from your practice, a separate account should be kept within the FLP for that purpose. You can move money in and out of this FLP without any problem so long as you keep a good record of the cash flow. This can be done on Quickbooks, quicken, or some other program or spreadsheet. This entity will produce income from your investment interest or dividends. It can also produce income through a contractual agreement with your practice for holding accounts. Any income can be used to take deductions (family travel expenses related to some business purpose, meetings in your home, or income shifting). Please refer to our tax information sheets for more specifics on these deductions.

Equipment FLP– This is the entity that will hold your business equipment. It will need at least one bank account (usually a checking account). The account will receive funds from leasing your equipment to your practice and will be used to pay for deductible expenses (purchase of new equipment, maintenance on the equipment, sales tax (if applicable in your state), income shifting, etc.). Your practice will pay this equipment FLP according to the lease agreement you have in place. That lease amount will be a deduction for your practice and will become income for this FLP, which should not be too hard to then expense out through the means mentioned above.

Your Work, Your Life, Your Money - Your Peace of Mind
Your Work, Your Life, Your Money – Your Peace of Mind
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