S Corp Vs LLC. Which one is better? Is there a Difference?

Question

Hi BP,

Is there a major difference between LLC and S Corp? I just heard advice that If I am a solo investor, I would need to be registered as a S Corp instead of an LLC. Does this advice have merit? I am a Buy and Hold Investor as well if that also plays a part.

Thanks for the advice in advance, disclaimer, I understand I will need to talk to a Tax professional for the best advice so do not worry, I will take heed to this as I am looking at the responses.

Best,

Chudi

Natalie Kolodij · Answer

An LLC is very much a real and legitimate business entity in the eyes of the IRS.

If you are not a real estate professional I would utilize an LLC over an S-Corp for holding rentals.

Rental income is passive if you're not a professional and therefore not subject to self employment taxes on your 1040.

If you set up an S corporation however you will A. Need to have a second tax return filing...but also you will need to take wages from the S-Corporation ..which will require you to pay employment taxes.

It it's just for holding rentals I'd go LLC and not elect to file as an S Corporation. Long term holding of real estate should almost never be kept in any type of corporation.

Natalie Kolodij · Answer

An LLC is very much a real and legitimate business entity in the eyes of the IRS.

If you are not a real estate professional I would utilize an LLC over an S-Corp for holding rentals.

Rental income is passive if you're not a professional and therefore not subject to self employment taxes on your 1040.

If you set up an S corporation however you will A. Need to have a second tax return filing...but also you will need to take wages from the S-Corporation ..which will require you to pay employment taxes.

It it's just for holding rentals I'd go LLC and not elect to file as an S Corporation. Long term holding of real estate should almost never be kept in any type of corporation.

Jason Layman · Answer

An accountant told me that Scorp is the way to go because the IRS looks at you as a "more real" business and you may have less auditing issues.  He also told me that an LLC can file as an Scorp by signing a form at tax time.   I have not done either.  He was not specialized in REI.   I would get a few different opinions.