Paying Yourself Rent (via Corp)

[Ray]

I have a small chiropractic firm as a client. The owner recently incorporated (LLC; Sub S).
He is the only member of the corp. I was wondering how appropriate it would be for the corp to pay him rent. He owns the building and it is paid for.

This would save a little money on the SE tax.

Anybody have any experience with this?

[John of PA]

RENT to S Corp

I'am not sure here how this scenario would save money on the SE tax. True the rent expense on the LLC/S Corp would lower the taxable profit, but that profit is not subject to SE tax. So I wonder if this paying of rent is an excercsise that yields no benefit?

[OldJack]

Rent

Your post is not exactly clear as to ownership of the building, but I assume he owns it as an individual and would be reporting expenses as commercial rental property on 1040 Sch-E. Therefore he should have rent income from the LLC to report against the expenses. Normally the only challenge from IRS on the rent expense is when a C-corp is paying an individual more than FMV rent or the S-corp is not paying a reasonable salary. SE tax is really not an issue.

In my state an LLC (that has elected to be treated as a S-corp) is still a "company" (LLC) and is "organized" rather than "incorporated" as that term is only for entities organized under corporation laws. Is that the case in other states or do they call LLC's corporations?

[Gretel]

LLC/Corp.

It is my understanding that a LLC is always a company for the state. A lot of people say mistakenly corporation.

If LLC chooses to be taxes as Corp. it affects tax treatment only and doesn't alter the status with the state in any way.