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Investing Retained Earnings
Ok, hypothetical, but will become realistic I am 22 and I make 140k a year. I live off of 36k and want to invest the rest into real estate. The goal is to create an investing business where all profits can be retained and re-invested into real estate every year until my mid 30's. The problem is that a C-Corp will become a personal holding company and that's horrible. A S-Corp is a pass through entity and is an absolute pain to get financing with. My idea was to invest under an LLC elected to be treated as a corporation for tax purposes. If I do this would I be able to fund the LLC periodically via owner contributions. Invest that money into real estate. Pay the flat 21% tax on all profits after write off's and not pay myself a dime. Then use the retained earnings to invest. And the cycle continues. My other question is that I have a LLC also taxed as a corporation for trading stocks. If I wanted to move retained earnings from my stock trading llc to my real estate llc how could I do that without the funds appearing as a form of revenue on the real estate llc's books and therefore being taxable? I understand that all responses to my questions are educational and theoretical and not legal tax advice. Before any action is taken I will consult a tax professional. :)
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@Clint Coons - are you a tax attorney?
I don't even know where to start with this. Advising S-Corp status for passive income? What about required reasonable salary.... Why would you trade 3.8% NITI in favor of 15.3% Social Security/Medicare? Not to mention, most states also require Unemployment tax as well as Worker's Comp Insurance.
I'm also not sure how you figure that 100% credit for the rent comes through on a K1. If anything, it actually makes things LESS transparent and worse for the client. With page 1 of Schedule E, a mortgage underwriter can see all of the income and expenses, back out depreciation and whatever else they're going to do and call it good. On page 2, they get 1 number - usually a loss, after depreciation, and nothing else to do with it.
Unless you give them the company tax return - in which case, they see all the same data as they would on page 1 of Schedule E. So you've bought exactly nothing with this.