“Should I buy tax lien certificates and tax deeds in your name or a business name?” Is a question that newbie tax lien and tax deed investors ask me quite often. The answer to this question really depends on your specific situation. It’s my opinion that when buying tax deeds, it’s better to buy the deeds in a business name because it affords you some liability protection. That is something you can to discuss with your lawyer and accountant. When you buy tax lien certificates, however, it’s not always an advantage to buy them in a business name for 2 reasons.

First, If you purchase a certain volume of tax liens and you do it through business entity, your profits will be considered business income and not investment income. That could make a difference come tax time. So this is something that you need to discuss with your accountant.

Secondly, many states require that your business entity be registered to business in their state in order to register to bid at the tax sale. If you’re bidding in your own name in another state, however, there is no such requirement. So it can cost you more to register to bid at tax sales that are in states other than the state your entity is registered in.

Your tax liens or redeemable deeds are not going to show up on a title search or credit report. If someone wanted to find out what tax liens you own, they’d have to do a search in every county you invest in. And since you don’t own the property, you don’t have any liability for it yet. Not until you actually foreclose the right of redemption and record a deed to the property to you actually own it. And at that time you can transfer it to a business or holding company. Don’t let not having a business entity to invest with stop you from investing in tax liens!

You can also buy tax liens and tax deeds inside your self-directed IRA or Solo 401K. In order to purchase tax liens or redeemable deeds, you’ll need to acquire a unique tax ID number for your retirement account. The county or municipality will require that you provide a tax ID number. You can’t use your custodian’s tax ID number because other investors might have the same custodian for their account. You can request a EIN (Employment Identification Number) for your IRA, Solo 401K, or Qualified Retirement Plan from http://irs.gov.

Note from the Author: This article was first published in 2010 and updated and republished in May 2019. I am not an attorney, or accountant, nor am I a financial planner. This is simply my opinion as an investor.