Rental Property Investor · Tucson, AZ · Member since 2019 · 173 posts · 87 votes
I am going to rent a private office and my plan is to make an LLC that collects rent from my personal business.
By doing this, my business income gets shifted into rental income thus avoiding a lot of the 15.3% Self Employment tax. This seems a lot simpler than going the S-Corp route although I could make an S-Corp + pay rent to myself saving me even more taxes.
From what I read online, it seems legal. The beauty of this is that my income would not affect lending guidelines for mortgages since it just gets shifted into rental income.
If the LLC actually owns property and leases property to the S Corp at fair market rents, you won't have an issue, even if you are the sole owner of both the LLC and the S Corp.
Make sure you run this by your CPA before you do it and ask about "self-rentals" as it relates to rental real estate. Particularly, the passive activity loss rules relating to this dynamic.
If the LLC doesn't own property, then at face value this is merely a sham transaction to shift income subject to SE taxes to income not subject to SE taxes, and it won't fly very far. There is no business purpose for the transaction. Its only purpose is tax avoidance.