Author Topic: Consulting LLC and Buying First Rental  (Read 201 times)

seanheinle

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Consulting LLC and Buying First Rental
« on: September 11, 2017, 06:59:01 AM »
I've been looking for a rental property for 12+ months and think I've finally found a great property.  I'm self employed and trying to navigate my options to maximize tax deductions and protect my assets.

As my main source of income, I do IT consulting through a single member LLC.  I'm considering filing as an S-Corp for the SE tax savings.  A salary of $90k should save me $4,360.50 in taxes (.153 * (118,000 - 90,000)).  The reasonable salary is difficult to assess.  If I was a full time employee, $90k would be a reasonable salary.  However, since I'm a consultant, I'm able to charge a much higher rate.  Is it still reasonable to claim a salary of $90k?

The rental property will be purchased by the LLC with cash at $55,000 assuming another $20,000 in repairs.  The cash will come from an HLOC to give flexibility.  After the repairs are done, I'll take a mortgage out on the property to pay off the HLOC.

Taxing savings will include: Deduction of $20k in repairs to get it ready to rent, $4.3k to S Corp filing, Interest on loan, Cost to close

I'd really like to do this myself.  Not so much to avoid the cost of a CPA.  I just like learning how to do this so I can re-use it down the road.

What am I missing here?  I'm sure a lot.  I've done quite a bit of research and this is where I'm at.  Hoping to get some pointed feedback so I can go back to the drawing board and finalize my strategy.

SeattleCPA

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Re: Consulting LLC and Buying First Rental
« Reply #1 on: September 11, 2017, 07:11:24 AM »
You mind find these IRS statistics on S corporation salaries useful:

http://www.scorporationsexplained.com/average-s-corporation-salaries.htm

You might also find this generic advice useful:

https://evergreensmallbusiness.com/s-corporation-reasonable-compensation/

But also this thought: Though I'm a big fan of the DIY approach to simple 1040s, I think you should not do a corporate return yourself. You're not really going to save money because the mistakes you make and the opportunties you miss will cost more than the price of having someone who does a lot of these returns do the work.

My blog Evergreen Small Business
My free downloadable ebook: Thirteen Word Retirement Plan

seanheinle

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Re: Consulting LLC and Buying First Rental
« Reply #2 on: September 11, 2017, 12:17:08 PM »
Those resources are great.  It justifies my assumption on salary which is nice.  In light of your comment, I'm going to rely on a pro for this.  Appreciate the feedback!