S corp for Real Estate Agent
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Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
4yJust as a summary in case this thread gets brought up again:
Having an S corp on earned income (comissions, sales, flips, wholesaling) Can save on payroll taxes, however I don't typically recommend it if earnings are under about $70k. The costs of an S corp for an additional tax return, payroll expense, full books, ect- often doesn't outweigh the savings if earnings are lower than that.
Rentals don't pay any payroll tax- and there are big downfalls to holding them in S corps as detailed above. Never keep rentals in S corps.
51 Replies
- Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes4y
Originally posted by @Dawn Heisler:
Best thing I ever did! I am an LLC with a Sub S Corp. I pay myself and my assistant through the same company who created the Smart Square for charging credit cards on your phone. They do everything including payroll taxes and our W2's at the end of the year. I pay myself a set amount. In my case $2000 every 2 weeks. $1000 goes into my bank account, $1,000 goes to pay taxes. I draw from the rest of my commission as needed. With my rentals and expenses for depreciation I now get a refund every year and save a ton in self-employment taxes.
Your agent income is taxed fully differently than rental income. Rentals already don't pay that payroll tax it's allowing you to save, and keeping appreciating assets in an S corp is a landmind of liability for tax.
- 4yLucas MartinezBusiness MemberDeveloper · Santa Barbara, CA · Member since 2021 · 81 posts · 48 votes
Coming back to the title of the thread, can one of the accounting experts on here summarize the benefits of a Real Estate agent forming an S-Corp to receive their commissions, assuming that agent makes over $100k in commissions per year?
- Investor · Lawrence, KS · Member since 2012 · 50 posts · 15 votes4y
@Natalie Kolodij, I am not ignoring the expert discussions, I am just in the situation where I already have property in an s corp so am seeking insight from others who also have property in an s corp.
- Investor · Lawrence, KS · Member since 2012 · 50 posts · 15 votes4y
@Lucas Martinez you make a good point. This thread is supposed to be about s corps for agents and agent commissions. We have deviated from the original intent by discussing s corps for properties. Apologies on causing some of that deviation.
- Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes4y
Originally posted by @Lucas Martinez:
Coming back to the title of the thread, can one of the accounting experts on here summarize the benefits of a Real Estate agent forming an S-Corp to receive their commissions, assuming that agent makes over $100k in commissions per year?
I am not a CPA but have been advised by my CPA for many decades and am regurgitating said info to you. So with that disclaimer out of the way, we use an S-Corp for all RE commissions, consulting fees, etc. which are over $100k annually and the tax savings are via the savings on FICA. The additional savings are the ability to write off operating expenses like automobile leases, gas and maintenance, cell phone, office lease, etc. Of course your CPA can also use these deductions on your personal return but I find it more professional and ease of accounting to do it through the entity, pay all the bills through the entity bank account, then what is left over is passed through to my personal return.
I will also second what all the tax pros above have stated regarding holding RE in an LLC rather than an S Corp. My CPA advised me early on to use LLC's for holds and use one of my S Corps to flip as flipping income is ordinary income taxed at your marginal tax rates. So by using the S Corp, I save some on the FICA as this entity also produces well over $100k annually so it makes sense to pay the $800 CA state franchise tax fee plus the CPA filing fee of the entity tax return (and all the book keeping costs to keep it up to date each month).
- 4yGreg O'BrienBusiness MemberAccountant · Boston, MA · Member since 2019 · 386 posts · 336 votes
@Natalie Kolodij yes I agree, a lot of terrible advice out there. We actually had a client come in who’s “advisor” told them to put a commercial building in a C Corp. Amazing
- 4yBasit SiddiqiBusiness MemberAccountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
I have had a tough time understanding how various entities provide different type of liability protection if everything is set up properly.
I can't believe a judge would say, 'you are an S-corp, that entity is not properly protected and as a result you are liable.'
It would be great to see some court cases of similar fact patters where the verdict was different based on entity.
Basit Siddiqi CPA4.979 Reviews - Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes4y
Originally posted by @Will Barnard:
Originally posted by @Lucas Martinez:
Coming back to the title of the thread, can one of the accounting experts on here summarize the benefits of a Real Estate agent forming an S-Corp to receive their commissions, assuming that agent makes over $100k in commissions per year?
I am not a CPA but have been advised by my CPA for many decades and am regurgitating said info to you. So with that disclaimer out of the way, we use an S-Corp for all RE commissions, consulting fees, etc. which are over $100k annually and the tax savings are via the savings on FICA. The additional savings are the ability to write off operating expenses like automobile leases, gas and maintenance, cell phone, office lease, etc. Of course your CPA can also use these deductions on your personal return but I find it more professional and ease of accounting to do it through the entity, pay all the bills through the entity bank account, then what is left over is passed through to my personal return.
I will also second what all the tax pros above have stated regarding holding RE in an LLC rather than an S Corp. My CPA advised me early on to use LLC's for holds and use one of my S Corps to flip as flipping income is ordinary income taxed at your marginal tax rates. So by using the S Corp, I save some on the FICA as this entity also produces well over $100k annually so it makes sense to pay the $800 CA state franchise tax fee plus the CPA filing fee of the entity tax return (and all the book keeping costs to keep it up to date each month).
Tax court has continually disallowed commission based personal service professionals, including real estate agents, from using S Corps. Tax professionals continue to promote this even though its clearly wrong. The tax courts reasoning that in a personal service business, an indivual is providing the personal service and not a company. While brokerages can utilize an s-corp, an individual agent electing to is incorrect, and will owe the back taxes and penalties on audit. I know 2 agents who this has happened to.
Fleischer v Commissioner.
District Invest Group545 Reviews - 4yMichael PlaksPro MemberTax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
Originally posted by @Lucas Martinez:
Coming back to the title of the thread, can one of the accounting experts on here summarize the benefits of a Real Estate agent forming an S-Corp to receive their commissions, assuming that agent makes over $100k in commissions per year?
Sure, why not. For real estate BROKERS or for agents that have their own TEAM - the potential benefit is controlling their payroll tax, aka self-employment tax, aka FICA aka Soc Security / Medicare tax - roughly a 15% tax.
If a broker nets $100k, she would pay $15k in this SE tax as a sole proprietor (which is no entity or a disregarded single-member LLC). If she operates as an S-Corp and can establish that her reasonable compensation is $60k and takes $60k as her W2 salary, then she saves 15% SE tax on the remaining $40k = $6k savings.
However, SOLO AGENTS should not play this game, in my personal opinion, for the same reasons that were mentioned by @Russell Brazil. This happens to be a controversial topic previously debated on BP among tax pros: https://www.biggerpockets.com/...
I have not changed my opinion since that 2-yo debate. For instance, look at the 2018 Tax Court case Pacific Management Group, BSC Leasing, Inc., Tax Matters Partner et al. v. Commissioner. where the Court concluded that "...The S corporation was a paper entity..." under the circumstances that I find to be similar to that of solo realtors.
- Accountant · Saint Petersburg, FL · Member since 2020 · 16 posts · 19 votes4y
For liability protection, many times real estate LLC's incorporate in Delaware. That way it goes to the correct business court right away...Judges, not juries, hand down quick and fair decisions based upon their knowledge of business law and reference to preceding cases. Everything is taken care of by people familiar with the laws vs. the common person.
Yes - S-Corp is a great option for realtor income. However, as stated by many others - it is not a good idea to hold real estate in one. It doesn't matter in the short term, but come sale you will have gains and depreciation recapture. The only time we really would consider it is if you own both a business and the rental, and you pay yourself rent for the building.
To take advantage of this option, you must own both the rental property and the business. You could also use grouping if the rental activity is “insubstantial” (a term undefined by the regulations) in relation to the business activity.
You can offset the income only if you materially participate, and need to be careful of the self-rental rule under the IRS code 469. This could potentially be a lose/lose situation due to passive loss rules, so you want to be sure to talk to your CPA before doing this. - Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes4y
Originally posted by @Russell Brazil:
Originally posted by @Will Barnard:
Originally posted by @Lucas Martinez:
Coming back to the title of the thread, can one of the accounting experts on here summarize the benefits of a Real Estate agent forming an S-Corp to receive their commissions, assuming that agent makes over $100k in commissions per year?
I am not a CPA but have been advised by my CPA for many decades and am regurgitating said info to you. So with that disclaimer out of the way, we use an S-Corp for all RE commissions, consulting fees, etc. which are over $100k annually and the tax savings are via the savings on FICA. The additional savings are the ability to write off operating expenses like automobile leases, gas and maintenance, cell phone, office lease, etc. Of course your CPA can also use these deductions on your personal return but I find it more professional and ease of accounting to do it through the entity, pay all the bills through the entity bank account, then what is left over is passed through to my personal return.
I will also second what all the tax pros above have stated regarding holding RE in an LLC rather than an S Corp. My CPA advised me early on to use LLC's for holds and use one of my S Corps to flip as flipping income is ordinary income taxed at your marginal tax rates. So by using the S Corp, I save some on the FICA as this entity also produces well over $100k annually so it makes sense to pay the $800 CA state franchise tax fee plus the CPA filing fee of the entity tax return (and all the book keeping costs to keep it up to date each month).
Tax court has continually disallowed commission based personal service professionals, including real estate agents, from using S Corps. Tax professionals continue to promote this even though its clearly wrong. The tax courts reasoning that in a personal service business, an indivual is providing the personal service and not a company. While brokerages can utilize an s-corp, an individual agent electing to is incorrect, and will owe the back taxes and penalties on audit. I know 2 agents who this has happened to.
Fleischer v Commissioner.
As with most non federal laws, laws are different in every state and speaking for CA only, our entity for RE commissions was approved by our board of realtors or otherwise would not have been used. So if the IRS has an issue with it, they can take it up with CAR and our board. I'm not worried.
- Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes4y
Originally posted by @Will Barnard:
Originally posted by @Russell Brazil:
Originally posted by @Will Barnard:
Originally posted by @Lucas Martinez:
Coming back to the title of the thread, can one of the accounting experts on here summarize the benefits of a Real Estate agent forming an S-Corp to receive their commissions, assuming that agent makes over $100k in commissions per year?
I am not a CPA but have been advised by my CPA for many decades and am regurgitating said info to you. So with that disclaimer out of the way, we use an S-Corp for all RE commissions, consulting fees, etc. which are over $100k annually and the tax savings are via the savings on FICA. The additional savings are the ability to write off operating expenses like automobile leases, gas and maintenance, cell phone, office lease, etc. Of course your CPA can also use these deductions on your personal return but I find it more professional and ease of accounting to do it through the entity, pay all the bills through the entity bank account, then what is left over is passed through to my personal return.
I will also second what all the tax pros above have stated regarding holding RE in an LLC rather than an S Corp. My CPA advised me early on to use LLC's for holds and use one of my S Corps to flip as flipping income is ordinary income taxed at your marginal tax rates. So by using the S Corp, I save some on the FICA as this entity also produces well over $100k annually so it makes sense to pay the $800 CA state franchise tax fee plus the CPA filing fee of the entity tax return (and all the book keeping costs to keep it up to date each month).
Tax court has continually disallowed commission based personal service professionals, including real estate agents, from using S Corps. Tax professionals continue to promote this even though its clearly wrong. The tax courts reasoning that in a personal service business, an indivual is providing the personal service and not a company. While brokerages can utilize an s-corp, an individual agent electing to is incorrect, and will owe the back taxes and penalties on audit. I know 2 agents who this has happened to.
Fleischer v Commissioner.
As with most non federal laws, laws are different in every state and speaking for CA only, our entity for RE commissions was approved by our board of realtors or otherwise would not have been used. So if the IRS has an issue with it, they can take it up with CAR and our board. I'm not worried.
You are claiming the the California Association of Realtors authority supersedes the IRS and Tax Court? FICA taxes are a California tax and not a Federal Tax?
District Invest Group545 Reviews - Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes4y
Not what I said at all, but not surprised that is what you took from it. I simply stated that our entity was approved by our association and our broker. If the federal tax courts take issue with every single CA Licensed RE agent who uses an entity, then I would certainly present the facts on hand. Our corporation collects more than just commissions anyways and has staff. We do not simply provide a personal service, therefore, the entity is not just a "paper entity".
- Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes4y
Originally posted by @Russell Brazil:
Originally posted by @Will Barnard:
Originally posted by @Russell Brazil:
Originally posted by @Will Barnard:
Originally posted by @Lucas Martinez:
Coming back to the title of the thread, can one of the accounting experts on here summarize the benefits of a Real Estate agent forming an S-Corp to receive their commissions, assuming that agent makes over $100k in commissions per year?
I am not a CPA but have been advised by my CPA for many decades and am regurgitating said info to you. So with that disclaimer out of the way, we use an S-Corp for all RE commissions, consulting fees, etc. which are over $100k annually and the tax savings are via the savings on FICA. The additional savings are the ability to write off operating expenses like automobile leases, gas and maintenance, cell phone, office lease, etc. Of course your CPA can also use these deductions on your personal return but I find it more professional and ease of accounting to do it through the entity, pay all the bills through the entity bank account, then what is left over is passed through to my personal return.
I will also second what all the tax pros above have stated regarding holding RE in an LLC rather than an S Corp. My CPA advised me early on to use LLC's for holds and use one of my S Corps to flip as flipping income is ordinary income taxed at your marginal tax rates. So by using the S Corp, I save some on the FICA as this entity also produces well over $100k annually so it makes sense to pay the $800 CA state franchise tax fee plus the CPA filing fee of the entity tax return (and all the book keeping costs to keep it up to date each month).
Tax court has continually disallowed commission based personal service professionals, including real estate agents, from using S Corps. Tax professionals continue to promote this even though its clearly wrong. The tax courts reasoning that in a personal service business, an indivual is providing the personal service and not a company. While brokerages can utilize an s-corp, an individual agent electing to is incorrect, and will owe the back taxes and penalties on audit. I know 2 agents who this has happened to.
Fleischer v Commissioner.
As with most non federal laws, laws are different in every state and speaking for CA only, our entity for RE commissions was approved by our board of realtors or otherwise would not have been used. So if the IRS has an issue with it, they can take it up with CAR and our board. I'm not worried.
You are claiming the the California Association of Realtors authority supersedes the IRS and Tax Court? FICA taxes are a California tax and not a Federal Tax?
I think Russel's point was the IRS will not give 2 shoots about if a state board for agents approved this idea.
YOU are who will be under audit, and YOU are who can have the impact of it. They won't take it up with the state board.
They won't face/disallow it for a mass amount of people- but individuals on an audit by audit basis.
Havinga brokerage/employees/agents under you is different than just being a solo Agent at a brokerage is the stance the IRS / Tax courts have historically taken.
- Member since 2022 · 2 posts · 0 votes4y
I'm a CPA in Texas that owns a firm specializing in real estate. I would advise against owning rental properties in an LLC taxed as an S Corporation or an incorporated entity taxed as an S Corporation. Sometimes its not terrible if you are the sole-owner and don't use financing but most rental properties carry financing that won't provide basis to the shareholder whereas a partnership does provide basis for 3rd party debt so long as it is recourse (or qualified nonrecourse). Additionally, you can't distribute property out of an S Corporation tax-free. I can't comment on legal protection of LLC vs. a Corporation as I'm not a lawyer. Partnerships much more flexible and beneficial for holding rental properties. Flips, owner financing, etc. would provide a much different answer and many more questions to determine appropriate entity selection. Are you a "Dealer" being the big question? Also need to consider qualified business income, wage limitations, etc. Find someone who specializes in real estate taxation and keeps up with tax laws as TCJA made some big changes that many CPAs didn't plan around. Best of luck
- Real Estate Agent · Shoreham, NY · Member since 2016 · 96 posts · 44 votes4y
I think you really need to consider your plans. I have most of my rental properties in my LLCs, I have one in my personal name ( plan to put into the llc) and have one owned by a joint venture between my SDIRA LLC and and also the one owned by my wife. My real estate sales are conducted by my S Cop (Llc elected to be treated like an scorp). I also have another management company set up as an llc. If you plan on have your children on payroll your better served paying them out of the LLC. Again, your set up depends on your structure and needs, but typically real estates sales are conducted via an s Corp and real estate investments through an llc.
- Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes4y
Originally posted by @Natalie Kolodij:
Originally posted by @Dawn Heisler:
Best thing I ever did! I am an LLC with a Sub S Corp. I pay myself and my assistant through the same company who created the Smart Square for charging credit cards on your phone. They do everything including payroll taxes and our W2's at the end of the year. I pay myself a set amount. In my case $2000 every 2 weeks. $1000 goes into my bank account, $1,000 goes to pay taxes. I draw from the rest of my commission as needed. With my rentals and expenses for depreciation I now get a refund every year and save a ton in self-employment taxes.
Your agent income is taxed fully differently than rental income. Rentals already don't pay that payroll tax it's allowing you to save, and keeping appreciating assets in an S corp is a landmind of liability for tax.
I'm not sure if I understand you.
Are you saying that an S Corp and an LLC filing as an S Corp are the same thing for Tax & Asset purposes
Or Are you saying that an S Corp and an LLC filing as an S Corp are entirely different for Tax & Asset purposes? - 4yMichael PlaksPro MemberTax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
Originally posted by @Will Barnard:
Our corporation collects more than just commissions anyways and has staff. We do not simply provide a personal service.
And that is the key for Federal taxation! The debate on this thread, and on this older thread https://www.biggerpockets.com/... was whether a SOLO agent without staff can use an S-corp to reduce her SE taxes on commission-only income. In your situation, which is very different, an S-corp is likely the correct solution.
- Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes4y
Quote from @Account Closed:
Originally posted by @Natalie Kolodij:
Originally posted by @Dawn Heisler:
Best thing I ever did! I am an LLC with a Sub S Corp. I pay myself and my assistant through the same company who created the Smart Square for charging credit cards on your phone. They do everything including payroll taxes and our W2's at the end of the year. I pay myself a set amount. In my case $2000 every 2 weeks. $1000 goes into my bank account, $1,000 goes to pay taxes. I draw from the rest of my commission as needed. With my rentals and expenses for depreciation I now get a refund every year and save a ton in self-employment taxes.
Your agent income is taxed fully differently than rental income. Rentals already don't pay that payroll tax it's allowing you to save, and keeping appreciating assets in an S corp is a landmind of liability for tax.
I'm not sure if I understand you.
Are you saying that an S Corp and an LLC filing as an S Corp are the same thing for Tax & Asset purposes
Or Are you saying that an S Corp and an LLC filing as an S Corp are entirely different for Tax & Asset purposes?I wans't saying either of those things. But those 2 things you listed file the sale way for tax purposes.
I was saying that there are different types of taxable income in real estate
Agent income = Subject to SE tax
Rental income= passive, Not subject to SE tax
People like S corps for tax purposes because they allow you to save on SE tax. So they don't save you any type of tax on rental income.
But having an asset in an S corp that is appreciating is a bad taxable sitaution- because if you ever need to transfer it out (to refinance, or a 1031 ect) it's deemed a taxable sale at current Fair market value. Even fi you're just transferring it to yourself.
- Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes4y
Originally posted by @Natalie Kolodij:
Quote from @Account Closed:
Originally posted by @Natalie Kolodij:
Originally posted by @Dawn Heisler:
Best thing I ever did! I am an LLC with a Sub S Corp. I pay myself and my assistant through the same company who created the Smart Square for charging credit cards on your phone. They do everything including payroll taxes and our W2's at the end of the year. I pay myself a set amount. In my case $2000 every 2 weeks. $1000 goes into my bank account, $1,000 goes to pay taxes. I draw from the rest of my commission as needed. With my rentals and expenses for depreciation I now get a refund every year and save a ton in self-employment taxes.
Your agent income is taxed fully differently than rental income. Rentals already don't pay that payroll tax it's allowing you to save, and keeping appreciating assets in an S corp is a landmind of liability for tax.
I'm not sure if I understand you.
Are you saying that an S Corp and an LLC filing as an S Corp are the same thing for Tax & Asset purposes
Or Are you saying that an S Corp and an LLC filing as an S Corp are entirely different for Tax & Asset purposes?I wans't saying either of those things. But those 2 things you listed file the sale way for tax purposes.
I was saying that there are different types of taxable income in real estate
Agent income = Subject to SE tax
Rental income= passive, Not subject to SE tax
People like S corps for tax purposes because they allow you to save on SE tax. So they don't save you any type of tax on rental income.
But having an asset in an S corp that is appreciating is a bad taxable sitaution- because if you ever need to transfer it out (to refinance, or a 1031 ect) it's deemed a taxable sale at current Fair market value. Even fi you're just transferring it to yourself.
Your Comment: "But having an asset in an S corp that is appreciating is a bad taxable sitaution- because if you ever need to transfer it out (to refinance, or a 1031 ect) it's deemed a taxable sale at current Fair market value. Even fi you're just transferring it to yourself."
Thanks, I did not know that part.I guess my confusion is, Do you happen to know whether having a property in an LLC that is Taxed as an S Corp even though it isn't actually In an S Corp, has the same effect that it is deemed a taxable sale at current Fair market value?
- Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes4y
Originally posted by @Natalie Kolodij:
Quote from @Account Closed:
Originally posted by @Natalie Kolodij:
Originally posted by @Dawn Heisler:
Best thing I ever did! I am an LLC with a Sub S Corp. I pay myself and my assistant through the same company who created the Smart Square for charging credit cards on your phone. They do everything including payroll taxes and our W2's at the end of the year. I pay myself a set amount. In my case $2000 every 2 weeks. $1000 goes into my bank account, $1,000 goes to pay taxes. I draw from the rest of my commission as needed. With my rentals and expenses for depreciation I now get a refund every year and save a ton in self-employment taxes.
Your agent income is taxed fully differently than rental income. Rentals already don't pay that payroll tax it's allowing you to save, and keeping appreciating assets in an S corp is a landmind of liability for tax.
I'm not sure if I understand you.
Are you saying that an S Corp and an LLC filing as an S Corp are the same thing for Tax & Asset purposes
Or Are you saying that an S Corp and an LLC filing as an S Corp are entirely different for Tax & Asset purposes?I wans't saying either of those things. But those 2 things you listed file the sale way for tax purposes.
I was saying that there are different types of taxable income in real estate
Agent income = Subject to SE tax
Rental income= passive, Not subject to SE tax
People like S corps for tax purposes because they allow you to save on SE tax. So they don't save you any type of tax on rental income.
But having an asset in an S corp that is appreciating is a bad taxable sitaution- because if you ever need to transfer it out (to refinance, or a 1031 ect) it's deemed a taxable sale at current Fair market value. Even fi you're just transferring it to yourself.
I did find this: "If the LLC has property that it then distributes to members, then whether the transfer is taxable depends on whether the LLC is taxed as a partnership or a S corporation. Distributions from a partnership are not taxable events. Distributions of property by a sub S are treated as sales of that property and the gain is taxable to the owner. The rules favor taxation as a partnership but probably again will not be in and of themselves compelling enough to want to be taxed as a partnership."
But it occured to me that distributions are a taxable event for sole proprietors and single member LLCs anyway, so there appears to be no difference unless your LLC is treated as a partnership. - Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes4y
Quote from @Account Closed:
Originally posted by @Natalie Kolodij:
Quote from @Account Closed:
Originally posted by @Natalie Kolodij:
Originally posted by @Dawn Heisler:
Best thing I ever did! I am an LLC with a Sub S Corp. I pay myself and my assistant through the same company who created the Smart Square for charging credit cards on your phone. They do everything including payroll taxes and our W2's at the end of the year. I pay myself a set amount. In my case $2000 every 2 weeks. $1000 goes into my bank account, $1,000 goes to pay taxes. I draw from the rest of my commission as needed. With my rentals and expenses for depreciation I now get a refund every year and save a ton in self-employment taxes.
Your agent income is taxed fully differently than rental income. Rentals already don't pay that payroll tax it's allowing you to save, and keeping appreciating assets in an S corp is a landmind of liability for tax.
I'm not sure if I understand you.
Are you saying that an S Corp and an LLC filing as an S Corp are the same thing for Tax & Asset purposes
Or Are you saying that an S Corp and an LLC filing as an S Corp are entirely different for Tax & Asset purposes?I wans't saying either of those things. But those 2 things you listed file the sale way for tax purposes.
I was saying that there are different types of taxable income in real estate
Agent income = Subject to SE tax
Rental income= passive, Not subject to SE tax
People like S corps for tax purposes because they allow you to save on SE tax. So they don't save you any type of tax on rental income.
But having an asset in an S corp that is appreciating is a bad taxable sitaution- because if you ever need to transfer it out (to refinance, or a 1031 ect) it's deemed a taxable sale at current Fair market value. Even fi you're just transferring it to yourself.
I did find this: "If the LLC has property that it then distributes to members, then whether the transfer is taxable depends on whether the LLC is taxed as a partnership or a S corporation. Distributions from a partnership are not taxable events. Distributions of property by a sub S are treated as sales of that property and the gain is taxable to the owner. The rules favor taxation as a partnership but probably again will not be in and of themselves compelling enough to want to be taxed as a partnership."
But it occured to me that distributions are a taxable event for sole proprietors and single member LLCs anyway, so there appears to be no difference unless your LLC is treated as a partnership.Distributions from a sole prop and SMLLC are not a taxable event.
Distributions from a partnership are not a taxable event.
You're taxed on your earnings- not what you take out.
And if you had a house in a SMLLC or Partnership...and transferred it to your name....no taxable event.
The only time transferring an asset to yourself/between yourself and your entity creates a taxable event is with an S corp. That's why we don't recommend keeping assets in S corps.
- Member since 2022 · 2 posts · 0 votes4y
Hey Mike, I think you are a bit confused on what an S Corp is. For state tax purposes you are either an entity that is a corporation or an entity that is an LLC (or many others not part of this discussion). At the federal level, the IRS allows you to make a designation of Subchapter C Corporation, Subchapter S Corporation, or a partnership (if you have multiple members)/sole proprietorship if single members. S Corp is just a federal designation. So you're an LLC taxed as an S Corp or you're a corporation taxed as an S Corp. Hope that helps. Taxation at the federal level is driven by tax designation.
- Member since 2022 · 2 posts · 0 votes4y
Quote from @J.C. Martel:
@Greg O'Brien, only the c-corp gets double taxation, not the S-corp. I’m thinking that real estate shouldn’t be in an s corp because a refinance or 1031 exchange would trigger capital gains tax. I wish I hadn’t structured the business this way!
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