Choose the right ownership structure when buying a vacation home

If you’re considering buying a vacation home, it’s critical to choose the right ownership structure. Your choices include a corporation, a trust, tenants in common or a limited liability company (LLC). While each structure has pros and cons, an LLC can be highly beneficial.

For example, using an LLC structure can limit (subject to certain exceptions) family members’ exposure to personal liability lawsuits associated with the property. This is especially important if you plan to rent the home when the family isn’t using it.

In addition, choosing an LLC structure for a vacation home can help simplify recordkeeping. The LLC is its own separate entity. So, all the operating funds for the home could be held in one account, making it easy to allocate the income and expenses between the LLC members.

A DAF may pair perfectly with an estate plan

Using a donor-advised fund (DAF) is worth considering if charitable giving is high on your estate planning objectives. What’s the main attraction? Among other things, a DAF can give you greater control over your charitable endeavors than direct donations.

A DAF generally requires an initial contribution of at least $5,000. A financial institution or an independent sponsoring organization manages the fund and charges an administrative fee, typically based on a percentage of the assets on deposit.

You instruct the DAF on how to distribute contributions to your preferred charities. While deciding which charities to support, your contributions are invested and potentially grow within the account. Then, the sponsoring organization vets the charitable organizations you choose to ensure they’re qualified to accept DAF funds. Finally, the checks are cut and distributed to the charities.

Are your business expenses properly substantiated?

Businesses can generally deduct their “ordinary and necessary” business expenses. But even a legitimate expense isn’t deductible unless it’s adequately substantiated.

Typically, substantiation requires proof of payment and evidence showing the character and deductibility of the expenditure. Proof of payment may include canceled checks, bank statements, credit card statements or invoices marked “paid.” You can establish the character and deductibility of an expense with items such as sales slips, invoices, receipts, payment acknowledgments and check registers. A canceled check may also suffice if it indicates the nature of the expense.

If a business can’t fully substantiate an expense, the courts have some leeway to approximate deduction amounts, provided the business presents sufficient evidence to support an estimate. However, this approach isn’t available for expenses that are subject to heightened substantiation requirements, such as travel, meals and entertainment expenses.

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