Property management LLC (filed as an S-corp for taxes) on my own properties?

Question

So I posted the other day asking if I could get around passive income on my rental properties so I could contribute to my retirement account. Post here: https://www.biggerpockets.com/forums/51/topics/1183339-contr... I read that it was possible to create a PM company under an LLC and pay myself to manage the properties but then I would be subject to 15% Self Employment taxes. However, now I'm learning that I should be able to do the same thing and just classify the LLC as an S Corp when filing my taxes and it avoids nearly all of the self employment taxes. This would then allow me to create a solo roth 401k and contribute a substantial amount more to it than just a traditional roth IRA. Has anybody done this? Do I have the gist or am I missing something important? I don't have a CPA yet and so I don't have anybody to ask currently. (I need to shop for one as I don't have a lot of friends doing the same thing as me in my state.) If this sounds like it's doable, then I'll need to find one and get the process started. Any information or experiences are appreciated.

Michael Plaks · Answer

See, it is not simple. Get yourself some good tax advice from a real tax pro. But right now none of us has time due to the April 15th deadline.

Patrick O'Sullivan · Answer

Corey, I have an EA referral if you're in need. She handles our taxes now for many years and a personal friend. Let me know, I can see if she's taking on new clients.

Leonardo Chandler · Answer

Yes, classifying your LLC as an S corporation when you file your taxes can avoid most self-employment taxes and open up new retirement planning opportunities like a solo 401k. This can be an effective way to manage your tax obligations and maximize investment opportunities.

Corey G. · Answer

I was planning on getting a CPA, but not knowing the right questions to ask of someone who I don't exactly trust yet (as a new customer) isn't the best way to go about things. If I have some insight into the general strategies of how to do what I am asking (which is what I was trying to get asking these questions) it would help me during that conversation. The fact that I can regularly speak to many real estate finance "experts" and many of them are uninformed about certain financial rules/options is one of the things I've had to learn the hard way. For instance, one "expert" I wasted my time/money on because he wasn't as informed/educated as he pretended to be. After spending thousands of dollars, I had to get someone else to fund my loan. So using this forum to gain a little advice on strategies (I read online and elsewhere in the forum) seemed like a good place to start. But instead of getting steered in a direction of right/left per your example, I'm told "you shouldn't be messing with concepts you don't understand" and "it's not simple, go get some advice from a real tax pro" who in all likelihood will just be an accountant who files taxes for a living and has no real experience with these concepts and will tell me it's not worth it, like Mike did.

Corey G. · Answer

Except you clearly posted that what I wanted to do likely wouldn't work. All in about a paragraph... so it seems a pretty easy to answer question after all.

Michael Plaks · Answer

@Corey G.

I know what BP is for and what this forum is for. Some questions are simple and can be answered on a forum. I have almost 5,000 posts where I've been answering these questions over the last several years.

What you're asking is a complex one. It does not have a one paragraph answer. Especially since you're clearly confused by several tax concepts that you read/heard about.

Corey G. · Answer

"You and your friends should not be messing with this when you don't understand these concepts well, and they are confusing."

Who is messing? I'm asking if it's possible before I go through the hassle of hiring a CPA for one question that I find out is probably not doable or worth it. "See, it is not simple. Get yourself some good tax advice from a real tax pro. But right now none of us has time due to the April 15th deadline."

Who said it was simple? I asked if it was doable. You make it seem like everybody should go set up an appointment with a professional anytime someone wants to ask one question about a particular topic... that's kind of the point of the forum. Bigger pockets wouldn't exist if every answer was "just go hire someone".

If I needed to speak with a professional every time I had a question about real estate, I wouldn't have got to the point where I've essentially made this my full time job/retired off my rental income.

Property management LLC (filed as an S-corp for taxes) on my own properties?

Most Popular Reply