LLC wrapped in S-corp, which Tax form do I use?

Question

Hi, long story short I setup my small real estate co in an LLC with the elected S-corp. Which Tax form do I submit to IRS? If you know the answer please provide the link.

Anything special I should know when filing?

Dave Toelkes · Answer

@William Howley,

If you have an active income business, and if the business makes enough money, the S-corp election lets you pay yourself a salary on which the payroll taxes will be assessed with the balance of the LLC income just subject to income taxes but not the payroll taxes. Without the S-corp election, all of the LLC's active income would be subject to the payroll taxes.

However, because a residential rental property activity is a passive income activity, there is never any payroll tax assessed on the net rental income.  There is no good reason, and a few disadvantages, to holding your rentals in an S-corp.  Suggest you consult a competent CPA and discuss how you might unwind the entity structure into something more tax friendly.

Stephen Chittenden · Answer

If you mean you have an LLC that elected S-corp status, you would file Form 1120-S.

William Howley · Answer

Thanks Dave, this is a complete a helpful answer. I will certainly look into that.

William Howley · Answer

well there are no partners yet-  unfortunately it looks like this is the path I will have to continue down. There was another accountant (not on BP) who told me to wrap in s-corp. I believe his logic was to save money if I were to pay myself with profits or something.

Andrew Abernethy · Answer

With an S-Corp, you can run into basis limitation issues that would prevent you from deducting losses from your rental activity (if you are able to take those deductions) - just one of the many reasons not to own rental property in an S-Corp.  An LLC offers more tax advantages and greater flexibility when setting up a JV in terms of allocating income among the Partners.

William Howley · Answer

Why should I now hold real estate in here long term? I do have the title of a property underneath this llc.

Steven Hamilton II · Answer

So you opened up an LLC and elected to have it taxed as an S-corp.  Make sure you never hold real estate in here long term.You will file a Form 1120-S

Jeff Robert · Answer

If both entities exist and both conducted business in the form of money or contracts or titles, then I believe both need to file taxes.

LLC wrapped in S-corp, which Tax form do I use?

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