Single Member S-Corp vs Employee

Anyone have an employer allows you to be paid 1099 to your LLC / S-Corp rather than as an employee of the company? Has this allowed you to reduce taxes or have any other benefits such qualifying for RE Professional tax status?

I am evaluating a new opportunity to be the first employee at a small RE investment shop. I have the option to be an employee of the company or be a “consultant” and get paid to my LLC that I would elect to be taxed as an S-Corp.

I plan to speak with an accountant, but would be interested to hear if anyone is doing this.

 

Thanks, I’m not looking for tax advice here. I’m curious to hear if anyone else that works on the principal side is doing this and what their motivations are. I know it’s not the norm, but some people like being paid that way.

As a reference, my old boss was “Vice President of Development” but was not an employee of the company. He had a single member s-corp, he did his own taxes and was on his wife’s health insurance.

 
Most Helpful

I've done this. It's worth it for the following reasons:

  • High cash flow due to delayed tax payments.
  • Favorable write-offs (i.e. up to 30% of rent, meals and entertainment, travel, lodging, etc.)
  • Qualified business income reduces taxable income by ~20%.
  • Save on payroll taxes since you'll be paying yourself via W-2 on only a portion of the total income as reasonable salary. The rest can be distribution.
  • Section 179 gives you immediate depreciation on purchase of certain assets.

You likely won't be able to hit the full-time real estate professional status on the principal side, and you won't be able to stay as an LLC if  you want to co-invest/receive carry.

 

Thank you for the detailed response. Why do you think that co-investing or having an allocation of carry would impact ability to stay an LLC?

I have never had carry as a part of my compensation in any previous role. However, I have formed numerous real estate partnerships that took LP investments from other LLCs. I also structure my deals so that an LLC owned by me is an investor and the managing member of the deal.

 

A very long time ago (long enough that tax rules may have changed significantly), I was doing some consulting and had this choice. I spoke to our excellent accountant who estimated how much we'd save on taxes using S-corp + 1099, and it was well worth it, so we did it. The cost of having the S-corp about about $1,000 / year (various fees to the state, paying the accountant to work on more forms...). It's worth the effort for you to consult an accountant who knows these matters (i.e. does more than 1040s). It's quite possible that you will decide to set up an S-corp.

 

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