I'm a day trader and would like to open an LLC next year so I can pay myself a salary and have benefits and a 401k. I also want to get into rentals at some point. Is it legal to open a Delaware LLC for my trading activities, a separate LLC for each rental then basically "hire" the Delaware LLC to manage them for a fee? Essentially the main LLC would not own the properties or even the other LLC's it would just be hired by them as the property manager. If so, how much profit can I realistically filter up to the main LLC? Say I cashflow $600 on a property, could I hire the main LLC to "manage" it for a $600 fee? If I have a mortgage on a property that would be paid by that specific LLC and then the profit would be sent off as a management fee. This way I leave all the property LLC's at a breakeven status and pay tax on the Delaware LLC.
Business Structure Legal or Not?
byu/tradehaven1776 inrealestateinvesting
Posted by tradehaven1776
2 Comments
Sounds sketchy af tbh – the IRS isn’t gonna buy that you’re paying 100% of cashflow as management fees, that’s way above market rate and screams tax avoidance scheme
There is no reason to use a foreign LLC- you will simply need to register as a foreign LLC in your state and pay double LLC fees. You are also creating a separate tax return filing and other potential complications. These kind of structures are great for people who have millions of dollars, but the cost/complication/ benefit for the regular investor /making a couple few hundred thousand, is not worth it.
Secondly, with depreciation you should not need to worry about income tax on rent income for a decade or two. The depreciation should wipe out most of the net income.
Lastly, having a separate LLC to manage property is not a bad idea, however when you change rental income into management income- it then becomes like a salary or 1099 income- and you need to pay social security tax on it, not really a smart move unless you need that income that way.