Author Topic: Using Real Estate Solo LLC to Generate Pre-tax Savings  (Read 922 times)

bb5999

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Using Real Estate Solo LLC to Generate Pre-tax Savings
« on: September 14, 2017, 04:19:20 PM »
I am a member of a real estate partnership, a LLC that brings in monthly income. Ill call it LLC1. Income from LLC1 is ordinary income. As a late comer to the FI mindset, I am desperate to find ways to lower taxable income and increase pre-tax savings. I have a day job where I participate in a company sponsored 401k. I max out the 401k, along with my HSA.

Any reason I cannot do this? Other ideas?

    Start my own LLC (Ill call LLC2)

    Move LLC1 into LLC2 as an income generating asset.

    Have income from LLC1 accumulate at LLC2 and, eventually, buy other real estate assets with it.

    Pay myself a fee for managing LLC2.

    Use LLC2 management income to fund a Simple IRA or.?

All ideas and guidance are appreciated.

SeattleCPA

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Re: Using Real Estate Solo LLC to Generate Pre-tax Savings
« Reply #1 on: September 15, 2017, 02:13:20 PM »
Not sure I understand what you're proposing, but consider several things as you move the puzzle pieces around...

A single member (or one owner) LLC is disregarded for income tax accounting purposes. E.g., if LLC2 is the single owner of LLC1, LLC1 is disregarded. If bb5909 is the  single owner of LLC2, LLC2 is disregarded. Owning the interest in the real estate through LLCs, therefore, is "invisible" in your tax accounting.

Another thing to know: Income and deductions retain their character as they flow out of a partnership. So the rental income flowing out of the real estate partnership retains that character--continues to "taste" like rental income as it passes though to you.

If the partnership was actually an active trade or business, the individual partners would need to synchronize their pensions with the partnerships. This is controlled group of corporations stuff.

Finally, that 401(k) elective deferral limit is across all your pensions. E.g., if you work 10 places, you still across all ten employees get only the $18K or the $24K limit.


bb5999

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Re: Using Real Estate Solo LLC to Generate Pre-tax Savings
« Reply #2 on: September 15, 2017, 09:16:31 PM »
Thank you for all of the thoughts and information SeattleCPA. I'll try to clarify things a bit more.

First, a question: can I pay myself a salary (minimal) to manage the disregarded LLC? The goal is to get some of the income going into LLC1 into pre-tax savings.

Thank you!

CareCPA

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Re: Using Real Estate Solo LLC to Generate Pre-tax Savings
« Reply #3 on: September 15, 2017, 09:23:01 PM »
Thank you for all of the thoughts and information SeattleCPA. I'll try to clarify things a bit more.

First, a question: can I pay myself a salary (minimal) to manage the disregarded LLC? The goal is to get some of the income going into LLC1 into pre-tax savings.

Thank you!
Since Seattle took all the hard questions (and is probably dealing with last-minute filers), I'll take the easy one ;)
No. You cannot be an employee of a partnership in which you have ownership. Furthermore, you cannot have guaranteed payments from your disregarded entity.

MustachioedPistachio

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Re: Using Real Estate Solo LLC to Generate Pre-tax Savings
« Reply #4 on: September 15, 2017, 09:49:56 PM »
Since Seattle took all the hard questions (and is probably dealing with last-minute filers), I'll take the easy one ;)
No. You cannot be an employee of a partnership in which you have ownership. Furthermore, you cannot have guaranteed payments from your disregarded entity.

Even if the disregarded entity (LLC2 as OP puts it) is taxed as an S-corp? Perhaps he could at least save a bit on payroll taxes?

CareCPA

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Re: Using Real Estate Solo LLC to Generate Pre-tax Savings
« Reply #5 on: September 16, 2017, 05:19:51 AM »
Since Seattle took all the hard questions (and is probably dealing with last-minute filers), I'll take the easy one ;)
No. You cannot be an employee of a partnership in which you have ownership. Furthermore, you cannot have guaranteed payments from your disregarded entity.

Even if the disregarded entity (LLC2 as OP puts it) is taxed as an S-corp? Perhaps he could at least save a bit on payroll taxes?
If it is taxed as an S Corp, it is no longer a disregarded entity.