As a newer realtor I'm thinking about starting an llc or s-corp so I don't get burned as badly on self employment taxes. I am also getting ready to move and rent out my current house and purchase a new one. I'm trying to figure out what makes most sense tax wise.
My question is if I have my commission checks paid to my llc, can I pay one or both of my mortgages directly from the llc? Essentially avoiding the self employment tax on this portion of income? Or does the house need to be owned by the llc? Am I not doing myself any favors by missing out on the tax exemption from the mortgage interest?
Thanks in advance!
Your primary residence mortgage payment is not a business expense, so no. An LLC has no effect on what expenses you can write off, the only savings is where you net say $100k, your LLC can pay you a salary of say $50k with associated self employment taxes, then the other $50k can be "profit" subject only to income tax, and not self employment taxes.
they are right, caitlyn. the house would have to be a business asset for you to pay the mortgage out of business expenses. you can use the funds to make the payment, but the payment would then be considered as owners drawing and subject to taxes
The one thing that no one has mentioned is the negative impacts of paying anything personal out of an LLC account. Not just your personal mortgage but any personal expenses should never be paid out of an LLC account. You will be eliminating any protection that the LLC provided for limited liability if you do that. A lawyer will easily be able to "pierce the corporate veil" and go after your personal assets if they can show that you treated your LLC bank account as a personal account. Never do this. You open yourself up to a ton of liability risk and would destroy any protection that an LLC could provide.
Mortgage payments for your primary residence and for investment property are NOT expenses for your business LLC or a corporation. So unfortunately you can not use those payments to lower your taxable income and therefore lowering your self-employment taxes.
Mortgage expense for both your primary and your rental can be deducted on your personal tax return, the mortgage for your primary as part of itemized deductions on line 40 of your 1040 and mortgage for you rental on Schedule E.
I am not a CPA and this is not a tax advise. Get a tax expert on your team, it's worth it.
@Nathaniel Busch specializes working with business owners and have been helping many of our mutual clients reduce their tax liability by doing proper tax planning (in advance), maximizing deductions through Solo 401k contributions and other creating strategies. I've seen people who neglected getting knowledgeable tax expert on their team and it cost them $$ thousands.
@Al Wilson off topic, sorry
I cannot send you a pm because of the accidental rejection of colleague request.
Brandon Turner may be able to fix the error.
You must be a BiggerPockets member to post on the forums
Join the world's largest, most open Real Estate Investing Community online, 100% free forever!