I am a new real estate investor. I just bought my first short term rental in Pigeon Forge, TN. Things are going great but I have a couple questions on business structure and maximizing tax advantages.
The two areas I'm wondering about are:
1. Business Structure - How should I structure my business so that I maximize my liability protection and tax advantages? I've read that an LLC may not be the best choice. My homeowners insurance has $1M liability coverage and I am also looking at a umbrella policy. My net worth is $500k. I don't have any employees.
2. Maximizing Tax Advantages - I am interested in using this business to maximize any tax advantages. I would be interested in being able to contribute to a SEP IRA or Self Employed 401K. My goal is to get 3 to 4 of these cabins in the next few years. The cabins are 5 hours from my house so at that point I would be interested in having a fuel efficient business vehicle. What are some other tips now for maximizing tax advantages? How will my business structure effect that? WIll my short term rental qualify as a business and if so is that good or bad for trying to minimize taxes?
Thanks so much for all your help.
You may not be able make SEP IRA contributions or self employed 401k contributions with just rental income. You may need a business that generates ordinary income.
Teal estate already has tax advantages-I don’t usually turn rental income from passive to earned income because it is an automatic 15% self employment tax.
in addition, you are talking about asset protection. Most asset protection strategies are based on segregation of assets and you have an umbrella policy so you have a good start. Asset protection beyond that using trusts, LLCs, corporations and offshore entities is more than should be discussed here.
Taxes and best Tax minimization strategies are best discussed with your cpa who knows your particulars-age, income, goals, family dynamics, investments, etc.
Asset protection and tax strategies should be integrated.