What are the methods for managing cash flow through your entity?
In this episode of Coffee with Carl, attorney Carl Zoellner guides you through the process of managing cash flow through your entity.
I talk a lot about entities here on this channel, especially when it comes to protection.
But what about cash flow?
The way cash flow works within entity structures is once all of you’ve had your Wealth Planning Blueprint or the visual depiction of what we would suggest for tax and asset protection, then we start looking at cash flow.
For example, if I have a rental property, there’s a couple of different ways to do this. Number one is your tenant can pay that LLC directly. If the rental property is titled in the name of the LLC, what’ll happen is you’ll leave enough money in the LLC for say operating expenses or incidentals, and since the Wyoming LLC owns that state-specific LLC.
After that, depending on the amount of float cash left in that specific LLC, you can draw the rest of the income or draw the rest of the cash from that state-specific LLC to the Wyoming holding company.
It’s a safe place to keep our assets as well as some funds. So that’s how that would work. And then whenever you need it, if you need it individually to take it out and spend it on things like living expenses, you would take the cash from the holding company into your personal account.
Now the transfer from your holding company to your personal account is not taxable. You’re already paying tax on the income so you can move it without worrying about a taxable event.
The opposite side of that would be through your corporation. When you take money out of your corporation, if it’s not a reimbursement, generally it’s going to be taxable either as salary or as a dividend.
If we’re looking at a C corporation, an S corporation will either be salary or distribution. So as far as money flow goes, it’s basically from our business level, LLC, to the parent company and from the parent company, if we’re looking at the holding company, you can withdraw it without some sort of taxable event through the corporation.
We’re going to try to remove money from the corporation first through reimbursements. If you’re out of reimbursements, then we need to look at something.
We need to look at the other options on how to get money out of there because the corporation is a separate taxpayer. So the transfer of funds is usually taxable through a separate taxpayer.
The Takeaway
You can ask your questions online through our tax team, also, we have a structure implementation class that goes through a lot of these items as well, with drawings and pictures and things like that, to help clarify it for you.
As always, keep taking advantage of our FREE educational opportunities and the free content we put out on the web. So that’s Toby’s Tax Tuesday, our tax and AP events for our clients who’ve already gone through our Tax and Asset Protection event.
Our Structure Implementation Series is fantastic. That answers a lot of the questions you have in the beginning. So there are a lot of different educational opportunities out there. One of my favorites as well is our Infinity Investing Workshop.
Resources mentioned in this video:
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