THE COLORADO LLC AS A WEALTH MANAGEMENT TOOL

Result: It worked. The 20% Qualified Business Income (QBI) deduction, plus deducting the costs of running an investment and property management business, paid off. Setup cost about $225 to $375, and upkeep is a $25 periodic report each year. As a Colorado tax resident, forming in a no income tax state like Nevada or Wyoming did not make sense.

The Problem

Real wages have stagnated, and regular employees pay a larger share of national taxes than shell companies for the rich. So why not play the same games until the legislation catches up?

To be clear, I do not support an unfair tax system. I want regular people to use the same loopholes while we work on reversing the Citizens United mess.

Hypothesis: If I run an investment and property management business through an LLC, its income qualifies for the QBI deduction, and the costs of running it become business deductions.

Why it matters: individuals can no longer itemize investment expenses. The 2017 tax law suspended those deductions, and the 2025 tax law made that permanent. Expenses are only deductible if they come from a trade or business. The LLC has to actually be one: run with continuity and regularity, with income or profit as the main purpose.

The LLC runs two real operations: a drop-shipping business, and a short-term rental (the container home I built in Pagosa Springs). Rental real estate gets a clear IRS safe harbor for counting as a business under QBI:

• Separate books and records for the rental
• 250 or more hours of rental services a year
• Contemporaneous time logs: hours, what was done, the dates, and who did it
• A statement attached to the tax return

The Solution I Tried

A Single Member LLC. It has the easiest paperwork and is usually the best option for the 20% Qualified Business Income deduction.

Creating It

1. $50 to create in Colorado.
2. $150 to $300 for an hour or two of a lawyer’s time to write a manager-managed operating agreement. Or pay me for one of mine.
3. $25 to notarize the operating agreement.
4. Optional: $10 to $12 a month for a mailbox with Anytime Mailbox or iPostal1. This shields your home address and can put you in a lower sales tax, less regulated municipality (unincorporated Jefferson, Gilpin, or Weld county).

Why Colorado and Not Nevada or Wyoming

Everyone talks about Delaware (zero sales tax). For an Investing and Lending business with no employees, no sales, and no tangible property, Nevada or Wyoming (zero income tax) look better on paper.

They do not help if you live somewhere else. A single-member LLC is a disregarded entity, so its income lands on my personal return, and Colorado taxes the income of every resident no matter where the LLC was formed. Forming out of state would have only added cost:

• Fees: Nevada runs about $425 to form and $350 a year (articles, initial list, and state business license). Colorado is $50 to form and $25 a year. At lower income levels, Nevada’s fees cost as much as Colorado’s flat income tax (4.4% for 2025).
• Crypto: Colorado’s cryptocurrency rules are more progressive, which I need for my LLC’s investments.

If you live in a high tax state, you need to get more creative. More on that in my family wealth office write-up.

Taxes

You file them with your normal personal income taxes.

If a single-member LLC does not elect to be treated as a corporation, the LLC is a “disregarded entity,” and the LLC’s activities should be reflected on its owner’s federal tax return.

https://www.irs.gov/businesses/small-businesses-self-employed/single-member-limited-liability-companies

Why the interest income qualifies: If your taxable income is under the threshold ($157,500 single or $315,000 married filing jointly when I set this up; $201,750 or $403,500 for 2026), and the business purpose is Investing and Lending (this one is), then interest income through the LLC is Qualified Business Income. The threshold matters because investing counts as a “specified service”, which loses the deduction above it. The deduction was set to expire after 2025, but the 2025 tax law made it permanent. The interest income is properly allocable to a trade or business.

Upkeep

1. File a periodic report every year ($25, up from $10 when I started).
2. Apply for an EIN and keep a bank account separate from your personal money. I like the Fidelity Account for Businesses. The downside: Fidelity (and American Express) crack down on physical addresses from a Commercial Mail Receiving Agent. Other banks let you use a virtual mail provider as your physical address. If your bank cares, check whether your address gets flagged as a Commercial Mail Receiving Agent.
3. Set up quarterly electronic estimated tax payments for the US federal government and your formation state, if you have no other withholding (like a W-2 employer).
4. Beneficial Ownership Information: nothing to file anymore. US companies are now exempt from FinCEN’s reporting rule.

Moving Assets In

To save on taxes, you transfer accounts and assets to the LLC as a capital contribution. Fiduciaries usually want:

• Articles of organization and/or a Certificate of Good Standing from the secretary of state where you formed
• The operating agreement, including beneficial owners (remember getting that notarized?)
• Government ID for every beneficial owner with more than 25%
• A bank statement in the company’s name, with the business address
• A detailed description of the business activity (for anti-money laundering checks)

Depending on where you live and how much you move in, the tax savings can cover all the startup fees in the first month.

Later: Estate Planning

There is no public market for LLC membership interests. So gifting membership interests to your heirs while you are still the manager means big asset write-downs for estate purposes.