Advice Needed: Best Practices for Managing a Maui Condo & Tax Structuring
Hello everyone; I’m reaching out to the community for some guidance and would greatly appreciate any insights you could share. Here’s a bit of background:
My in-laws own a condo in Maui that a large management group has managed until now. They've decided to part ways with this company and have asked me to manage the property on their behalf. (STR)
I'm researching the best and most straightforward ways to structure this arrangement from a business and tax perspective. The in-laws want simplicity since they have no interest in managing the unit.
From what I understand, it seems logical for them to handle the required taxes (TAT & GET) and compensate me via a 1099 form. However, I've also considered establishing an LLC, possibly in California. Still, I'm concerned about potential tax complications given the property's location in Maui, my residence in California, and my in-laws living in Washington.
Am I overlooking anything crucial here? Does anyone have recommendations or thoughts on approaching this situation for ease of management and tax efficiency? Thank you in advance for your help and insights!
Hi Sebastian, it may not be advisable to form your LLC in California if the principal place of business is not located within California. This would avoid the $800+ LLC fee so long as you can avoid the classification of "doing business" within California. Since your in-laws own the condo, it seems like the easiest solution would be for what you first suggested in receiving compensation via form 1099. I personally cannot see a reason for an LLC for a management agreement as it doesn't really mean a whole lot from a tax perspective assuming it's a single-member LLC.
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#3 Tax, SDIRAs & Cost Segregation Contributor
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- San Diego, CA
Quote from @Benjamin Weinhart:
Hi Sebastian, it may not be advisable to form your LLC in California if the principal place of business is not located within California. This would avoid the $800+ LLC fee so long as you can avoid the classification of "doing business" within California. Since your in-laws own the condo, it seems like the easiest solution would be for what you first suggested in receiving compensation via form 1099. I personally cannot see a reason for an LLC for a management agreement as it doesn't really mean a whole lot from a tax perspective assuming it's a single-member LLC.
Agree with this. If your not going to own the property in the LLC (you mentioned you are just going to manage it) then you don't need the asset protection. Them having an LLC for the property is a whole other conversation. They might want to hold the property in an LLC, and have its own bank account for expenses
I've heard you can designate a family member as an employee and avoid taxes if you keep their income under a certain limit. This seems ideal for your situation. Ask a CPA or DM me for referral
I agree the LLC is unnecessary if you're just managing this one property for them.
A problem with this plan is that Hawaii State law requires an on-island contact. Perhaps you could get your housekeeper to be this person?
Hi Loren, Zachary, and Benjamin,
Thank you for your responses. I've realized I omitted an important detail regarding the proceeds and my initial thought behind forming an LLC. I manage a short-term rental in San Diego and am considering integrating my in-laws' STR under this operational model to reduce taxable income.
Establishing an LLC seemed like a way to merge our business accounts, potentially decreasing taxable income from our STR by accounting for expenses from an added unit. However, based on our conversation, this strategy might unnecessarily complicate things.
As a 1099 contractor, can I deduct all upfront expenses for the STR upgrade, as I did with my San Diego property?