Does anybody have experience with operating your real estate company and contracting business under the same LLC?
I'm new to REI and have one rental property, which is not my primary source of income. I recently started doing contracting in my local area (small remodels, electrical, plumbing, handyman services) and figured I might as well operate both businesses under the same LLC. However, I'm wondering what implications/difficulties this may cause regarding taxes, legal/insurance liabilities, or any other aspects I'm not considering.
Investor · CT · Member since 2023 · 30 posts · 9 votes
2y
A few thoughts - from a legal perspective, I would keep the real estate business in a separate LLC. This separates the assets in the two entities if there is any litigation or other legal issues. For example, if you were to get sued for something related to your handyman services, they could potentially take your rental property if you lost the lawsuit.
From a tax perspective, you should discuss with a tax advisor, but I would consider the contracting business being operated out of an S-Corp. S-Corp earnings are not subject to self-employment tax. You would need to pay yourself a reasonable salary in the S-Corp (including related payroll taxes) however, this is usually better than subjecting your net profit from the business to self-employment tax. There are some specifics in the S-Corp rules regarding a reasonable salary but basically you would pay yourself a reasonably hourly rate. So for example, if you did a small remodel that took 40 hours and charged $10,000, you might pay yourself $4,000 ($100 per hour, or whatever the going rate is in your area). Your S-Corp profit would be $6,000. You would pay payroll tax on the $4,000 but the $6,000 of net profit would not be subject to self-employment tax.
I apologize for the late response. Thank you so much for taking the time to create such a detailed and helpful response! I really appreciate it and it was definitely useful!