Cpa says I have to paymyself through my mmllc?

Question

My wife and I just bought a duplex in the state of Iowa, we set up a mmllc to put on title of said property. I called a friend who is a cpa, he told me I would have to pay myself, which would mean extra taxes.( The property only brings in 1450 a month with a 950 mortgage.) From my research I have personally done the llc is just an extension of my personal income. And I dont have to " pay myself" as it is a pass through entity. He said he didnt know much about the llc setup, and I tend to believe him. As I believe this info is untrue in my case. Am I wrong in my assumptions. Am I not understanding something. Any insight would be greatly appreciated.

Patricia Steiner · Answer

You get what you paid for...and "friendly" advice is often incomplete.  There's a big difference between a LLC and MMLLC.  This will provide you with more detailed information:

https://gusto.com/blog/start-business/multi-member-llcIt's hard to overcome stupid so do your homework and then invest in good tax counsel if needed.

Steve Vaughan · Answer

My thought here is if you elected to be taxed as an s-corp for some reason.

That would be as silly for a passive asset as asking a friend or your drunk brother-in-law for tax advice at Thanksgiving. 😎

Paul Beets · Answer

@Aaron Marx Find a CPA that specializes in real estate.   Not all CPAs do.

I can tell you from my own situation that no only do I not pay additional taxes ... but I quit paying federal tax in March because of my expected real estate losses this year.

I’m not a CPA and not authorized to give tax advice.   But a good CPA for real estate investors is essential.   And there are a lot of really good ones out there.

Chris Coleman · Answer

@Aaron Marx

I’m not a CPA or an accountant, but I’ve own numerous LLCs.  I’m not sure why your friend would say you have to pay yourself from the LLC.  Is he simply saying not to commingle funds since the property is in the LLC?  That would be correct.  Or what he may be referring to is that any profits in the LLC will be passed through to your personal income, for which you’ll be responsible for the taxes.

Account Closed · Answer

You might explain to him how that differs from co-mingling funds. I think that is what he is asking but doesn't know it.

Josh Dixon · Answer

I would definitely recommend having a separate bank account and a separate set of accounting from his personal (if he doesnt already), in which case he would have to write a check to himself for any distributions, and maybe that was what his friend meant by he would have to pay himself.

Eamonn McElroy · Answer

@Ned Carey

There are a few different areas a CPA can specialize in.  Most CPAs don't practice tax, and out of those that do, most aren't in public accounting.

I suspect his CPA friend works in audit or on the private side for a corporation.

Eamonn McElroy · Answer

@Aaron Marx

"He said he didnt know much about the llc setup"

That seems to be the problem right there...

Seek advice from individuals who know something about the subject matter.

Carl Fischer · Answer

@Aaron Marx

The LLC has to pay(account for the income )you and your wife pro rata, based on the percentage of ownership in the LLC wether it is a partnership or “S” Corp. Pay could mean w2 Or 1099  or dividend depending on your strategy and objectives. You need to follow the rules as you mentioned to maintain the “veil of protection”. As it is multi member LLC a tax return will most likely be required. Either way, as mentioned above little to NO tax will be required based on noted income and expected depreciation. Cpa probably meant properly bookkeep the income and expenses. If it was a single member LLC it could be considered a “disregarded” entity without a tax return being required.

Pat L. · Answer

Giving the CPA the 'benefit of the doubt' maybe they're indirectly quoting the old adage..."pay yourself first".

So before you do anything else, set aside & SAVE a portion of your now passive income, by simply putting it into a 401(k), Roth IRA, or just a savings account. The latter strategy also has tax deferral advantages for other earned income streams.

Cpa says I have to paymyself through my mmllc?

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