New Investor: Form LLC elect S Corp tax status?

Question

Hi there!

Would it be beneficial for me to form an LLC and elect S Corp taxation status? My goal is to buy and hold investment properties but also become a licensed real estate agent to property manage others properties and build a large multi-faceted investment and property management firm.

My thought is I would benefit from S Corp status by saving on the self-employment tax ? I'm trying to set myself up for long-term success based on where I want to go with this but not sure how to get started.

I want to start investing now and manage my own properties but won't be able to manage other people's properties right away due to having to work under a broker in charge for a few years.

The catch: we are a military family due to get orders soon so it's hard to put roots down somewhere. Any advice is appreciated

Michael Plaks · Answer

@Ashton R.

What you're asking is an equivalent of selecting clothes for a baby that has not been conceived yet. You can buy a lot of cute dresses, and it will be twin boys. S-corporation helps in only very specific situations, and you have no way of predicting yours. In fact, it can hurt rather than help.

Also, it's pretty hard to set up a property management company when you're constantly on the move.

In other words, I suggest you need a good plan first, and details much later. When you start, S-corporations are to be avoided, as a rule of thumb.

When you choose a tax professional, the keys are understanding real estate and understanding special tax rules for the military. Very hard to find people who are experts in both.

Steven Hamilton II · Answer

DO NOT use an S-corp for buy and hold. If anyone advises you to do so run.

Natalie Kolodij · Answer

My suggestion would be finding an excellent Tax pro to advise on items like this and make sure you're set up best for the long run.

Rentals are passive income, there is no self employment tax.

And actually, keeping long term rentals in an S corp can create a whole headache of taxable issues.

Ashton R. · Answer

@Natalie Kolodij

Thank you, good to know!

Natalie Kolodij · Answer

Absolutely- most tax professionals work with clients across the country.

Ashton R. · Answer

@Steven Hamilton II

Thanks! I'm learning as I go

Ashton R. · Answer

@Michael Plaks

Thanks for the reply. I understand it's hard to start a property management company being in the military, as I've been in this life for 13 years and have my own business as well as hold a corporate executive position. That's why I wanted to start investing now with future plans to do property management.

I do not know about real estate, thus my questions may be off a bit and I am learning all the nuances.

I appreciate your knowledge.

Ashton R. · Answer

@Natalie Kolodij

Our home of record is South Carolina (according to military) and are due to get orders to North Carolina. If we do, would this topic be something you could advise on?

New Investor: Form LLC elect S Corp tax status?

New Investor: Form LLC elect S Corp tax status?

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