How Do You Pay Yourself?

Question

So, I'm a couple weeks away from closing on my first 4-unit and was wondering... "How am I going to pay myself?"

How do you initiate and record payment to yourself? Do you put yourself on payroll? Do you calculate your "property management" time as an expense at the end of the year?

Michael Quarles · Answer

LAST

Kyle J. · Answer

Pay yourself for what exactly?  If you're the owner of this rental, you'll get the income from the rent payments.  Your "payment" will basically be the income minus any deductible expenses for tax purposes.

Ryan Logsdon · Answer

There are great benefits to an LLC, and you're in Iowa, so your fees are minimal.

You can pay yourself FIRST in multiple routes.  Here are a basic few

* rent from yourself! If you maintain a home office specifically for the LLC's use, your LLC can pay rent to you. Now your LLC's paying part of your own property! This can't be a common area or any area with a secondary use.

* pay for incidentals from company funds, anything "ordinary and necessary" (this says if you made $1000 but had $250 of expenses, Uncle Sam only taxes you on $750 profit)

* reimburse driving mileage (you can't go overboard and call your call a business vehicle until you've reached a large threshold of usage)

* you can use your company's funds to pay your continued educational expenses BEFORE tax (there's a max $, check your state for differences in the law)

* fund your IRA (check your state's laws, also)

* elect when your tax year begins (if you choose to be taxed as a corporation; this loses other benefits; you'll also need a 2nd owner just to exercise this option)

Anyone who dismisses and bemoans an LLC as just a pass-through entity has never stopped to understand its benefits.

George P. · Answer

i think you can afford more than just sprinkles....

15k for 6 months at 1% (generous bank % these days) is a whopping $15,075.19 balance. that's 15 Dairy Queen blizzards!

Marie S. · Answer

Is it safe to assume that getting a Salesperson's License can be considered an ordinary and necessary expense given the property management aspect is covered in the curriculum?

Ryan Logsdon · Answer

Also, you can re-read my post, as I mentioned the exact phrase that you said to me,

Again, this is to broaden Marie's horizons.  It's not to give her the specificities of how to run her business. That's not my job nor yours.

Ryan

Ryan Logsdon · Answer

Steven Hamilton II of course the income from 1 property is going to be small and the LLC will be limited.   This discussion is to broaden the understanding of what all possibilities are.

Now on the topic of setting aside office space, who would set aside half their house to write the bills to PM a propert? No one.  But you can set aside a reasonable space to conduce business regardless of the amount of money you bring in.

Steven Hamilton II · Answer

Ryan Logsdon,

The expenses have to be ordinary and necessary.  With a rental you will not be funding an IRA as it is not considered earned income.  One property makes it hard to justify a home office.

Again with a single memeber LLC only holding a rental property it is a disregarded entity and therefore filing Schedule E on the proprietor's 1040.

Continuing education expenses beyond typical amounts are not an ordinary and necessary expenses.  You are not going to be able to reimburse part of your MBA.

No, you don't need a second person to elect to be taxed as a corporation.  You simply make an election.

-Steven the Tax Guy

Marie S. · Answer

Thanks!! I will definitely look into that.

Steven Hamilton II · Answer

As far as paying yourself, you do not have to deal with payroll.  this income is not subject to Self Employment Tax.  It is subject to ordinary income tax rates.

-Steven

How Do You Pay Yourself?

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