Question

John Schumer operates three entities that he owns 1000% in the Providence, RI area. There are two limited liability companies (LLCs) and one S corporation. Each of the LLCs holds rental real estate. LLC 1 holds a six-story, multi-unit building. The minimum tenant stay there is 31 days. And there are mandatory housekeeping serviced provided on a bi-weekly basis. LLC 2 holds a single-family home rented on an annual basis. Both LLC's pay the S corporation a managment fee. John is the sole employee of the S corporation, from which he take a full-time salary for managing the two LLCs, where he materially participates. He is an architect. However, all his time spoent running th three businesses. He no longer performs architectural services.

1) Is the rental activities income subject to the self-employment tax?

2) Finally, how can we streamline the recordkeeping for the three entities?

Details for the Tax Projections:

- John takes a salary of $50,000 from the S corporation.

- The S corporation provides a 401 (k) plan for its employees. John contributs the maximum to the 401(k)

- Gross rental income is $360,000 for LLC 1 and $60,000 for LLC 2.

-Rental expenses (excluding depreciation and management fee) for LLC 1 are $90,000 and $25,000 for LLC 2.

- Depreciation expense for LLC 1 is $25,000 and for LLC $16,000.

-The management fee from LLC 1 is $138,000 and LLC 2 $43,000.

- Assume John is in the 28% marginal tax bracket.

Answer 1

Given data:

Two limited liability companies (LLCs) , LLC 1 holds a six-story, multi-unit building.LLC 2 holds a single-family home rented on an annual basis.

Required:

1.Rental activities income subject to the self-employment tax?

2..How can we streamline the recordkeeping for the three entities?

3.Assume John is in the 28% marginal tax bracket?

Solution:

1.Dissimilar to compensation from work or a business you take part in, rental wage isn't thought to be earned salary. It's not delegated venture pay like capital additions, intrigue and profits are. Rather, it's thought to be easy revenue by the IRS, and in this manner isn't liable to independent work charge.

2.For LLC Setting up a LLC is the most widely recognized, each in their own LLC all held by a holding LLC then you have twofold layer security, That is all the more a legitimate issue than it is a financing or business issue, a legal counselor can assist you with the best organizing system. The thing to recall however is that as your venture portfolio develops in normally turns into a business unto itself so setting it up along these lines from the begin will spare you issues later on

I generally recommend that customers have a solitary working LLC, and afterward slighted elements for every property, of which the working LLC is the sole part. Keeps things isolate for accounting and records purposes, and also giving the additional layer of assurance. For the couple hundred dollars additional you will spend looking after LLCs, if something occurred at one of the properties, you are secured (generally) from any judgment lender contacting your different speculations. pay worker ought to keep up the record of finance, impose risk, compensation structure, time keeping and so on.

Solution:

1.Dissimilar to compensation from work or a business you take part in, rental wage isn't thought to be earned salary. It's not delegated venture pay like capital additions, intrigue and profits are. Rather, it's thought to be easy revenue by the IRS, and in this manner isn't liable to independent work charge.

2.For LLC Setting up a LLC is the most widely recognized, each in their own LLC all held by a holding LLC then you have twofold layer security, That is all the more a legitimate issue than it is a financing or business issue, a legal counselor can assist you with the best organizing system. The thing to recall however is that as your venture portfolio develops in normally turns into a business unto itself so setting it up along these lines from the begin will spare you issues later on

I generally recommend that customers have a solitary working LLC, and afterward slighted elements for every property, of which the working LLC is the sole part. Keeps things isolate for accounting and records purposes, and also giving the additional layer of assurance. For the couple hundred dollars additional you will spend looking after LLCs, if something occurred at one of the properties, you are secured (generally) from any judgment lender contacting your different speculations. pay worker ought to keep up the record of finance, impose risk, compensation structure, time keeping and so on.

3. John is in the 28% marginal tax bracket calculation:

Represents the tax deduction (6720,14000)

- As these 2 are having misfortune, the same can be set off with antoher business salary.

- Add up to charge risk will be subsequent to setting off all misfortunes identified with the assesee.