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    Parent Company for various rentals

    I have to set up payroll for a client who hired people to help him manage all his rentals. All his rentals are owned by LLC's, he also still has a dormant S-Corp that was used for house flipping before 2010. Payroll needs to be set up again anyway and I tend to use a LLC rather than this old S-Corp. Are there advantages of using the S-Corp.? I only see the disadvantage of corporate formalities. Either one will be 100% owned by my client.

    #2
    Originally posted by Gretel View Post
    I have to set up payroll for a client who hired people to help him manage all his rentals. All his rentals are owned by LLC's, he also still has a dormant S-Corp that was used for house flipping before 2010. Payroll needs to be set up again anyway and I tend to use a LLC rather than this old S-Corp. Are there advantages of using the S-Corp.? I only see the disadvantage of corporate formalities. Either one will be 100% owned by my client.
    Since the LLC is the landlord collecting the rent income it make sense to pay its employees from the business payroll instead of the dormant S -corp with no income.
    Taxes after all are the dues that we pay for the privileges of membership in an organized society. - FDR

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      #3
      Originally posted by Gretel View Post
      I have to set up payroll for a client who hired people to help him manage all his rentals. All his rentals are owned by LLC's, he also still has a dormant S-Corp that was used for house flipping before 2010. Payroll needs to be set up again anyway and I tend to use a LLC rather than this old S-Corp. Are there advantages of using the S-Corp.? I only see the disadvantage of corporate formalities. Either one will be 100% owned by my client.
      I can't see that there would be any difference from a tax perspective. However, it sounds like your client was given legal advise to set up several LLC's for legal protection. For your protection, you may want to have him get a legal opinion on any potential consequences of running payroll through one of the LLC's.

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        #4
        Wouldn't the property managers be IC's or is the owner controlling all of their participation? Couldn't he be an LLC (Parent company) disregarded entity and file a Sch C issuing 1099's to the managers? I find many reasons to file Sch E's independently for each rental rather than lump them into one. Does he qualify as an RE professional by doing the LLC?
        Believe nothing you have not personally researched and verified.

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          #5
          I think I need to clarify the issue. Each property is owned by a different LLC and managed by a management company. This will not change. Part of the profits from each of the LLC's will be used to pay employees for services that are beyond regular management company activities. They are under total control of my client and are certainly employees, which is not the issue here. The "parent" company (no matter if the S-Corp. or a new LLC) will have income from each of the existing LLC's for these additional management services.

          The question is if it makes a difference from the tax perspective using a S-Corp or a LLC.

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            #6
            Originally posted by Gretel View Post
            I think I need to clarify the issue. Each property is owned by a different LLC and managed by a management company. This will not change. Part of the profits from each of the LLC's will be used to pay employees for services that are beyond regular management company activities. They are under total control of my client and are certainly employees, which is not the issue here. The "parent" company (no matter if the S-Corp. or a new LLC) will have income from each of the existing LLC's for these additional management services.

            The question is if it makes a difference from the tax perspective using a S-Corp or a LLC.
            I don't think so, but be careful about the SCorp. As long as the shareholder doesn't take any draws and the SCorp shows no profits (ideally, breaks even) you can probably avoid the reasonable salary issue.

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              #7
              Using an otherwise inactive corporation to pay employees who don't even work for it would be awkward at best. I assume each of the LLCs is a SMLLC, so everything gets reported on the owner's personal income tax returns anyway ... on Schedule E. Why doesn't he just treat himself as the employer? After all, he is, isn't he?
              Roland Slugg
              "I do what I can."

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                #8
                Originally posted by Roland Slugg View Post
                Using an otherwise inactive corporation to pay employees who don't even work for it would be awkward at best. I assume each of the LLCs is a SMLLC, so everything gets reported on the owner's personal income tax returns anyway ... on Schedule E. Why doesn't he just treat himself as the employer? After all, he is, isn't he?
                Yes, he is the employer...BUT it's more complicated. The real issue is liability protection and stupid things employees might do including the company car. This management company will not just pay payroll. This company - my client and any employees - perform functions to oversee all rental properties. This includes the construction of such. Mainly, my client buys land, subdivides, builds and then has rental property. In other words, there are employees working the company, whatever form this company will have.

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                  #9
                  Who is the employer?

                  If the S-Corp is NOT the employer, how can you use it for the payroll? Seems straightforward to me. The actual employer needs to have an account, and if that is NOT the S-Corp, you shouldn't use it.

                  Am I missing something?

                  Kerrie

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                    #10
                    Originally posted by tpnl View Post
                    Am I missing something?

                    Kerrie
                    Yes, you do.

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