Looking at starting a vacation rental LLC. Basically I’m curious what the high level general tax situation looks like if I don’t plan on taking any money out of the business in the near future. Let’s say the business generates 100K in revenue and 25K in profit.

Does the business still pay taxes on profit regardless? Or is it only dependent on whether I draw any money out, and then I assume that would be subject to income taxes. Mostly wondering if I end up getting taxed twice by time it ends up in my pocket?

Also thinking about how the rental services (AirBNB) charge a tax to the renter during the transaction. Does that factor in on my end at all?

Thanks

Comments

DeluxeXL t1_jaa7v51 wrote on February 27, 2023 at 11:43 PM

#2,079,713

Unless elected as a corporation, a LLC is a pass through for all income and all taxes.

If elected as S corp, income and income tax are passed through. Not payroll tax. Some states may tax S corps or charge business license fees.
If elected as C corp, nothing is passed through. Corporate taxes apply.

chris886 OP t1_jaa8m1r wrote on February 27, 2023 at 11:49 PM

#2,079,942

Replying to DeluxeXL (#2,079,713)

Ok thanks. So whatever the business profits, I profit, and owe taxes on.

Thisismypasswprd t1_jaaat3i wrote on February 28, 2023 at 12:04 AM

#2,080,598

Replying to chris886 (#2,079,942)

Yes and if the business spends its revenue then it didn't make any profit to be taxed on. Maybe your existing car is now the business vehicle ... etc

chris886 OP t1_jaab39c wrote on February 28, 2023 at 12:06 AM

#2,080,685

Replying to Thisismypasswprd (#2,080,598)

Yep yep. Definitely going to be vetting out the deductions game for all it's worth!

Thanks.

vettewiz t1_jaacifc wrote on February 28, 2023 at 12:16 AM

#2,081,109

Replying to chris886 (#2,080,685)

Remember the big tax savings, depreciation of the property.

chris886 OP t1_jaacqgg wrote on February 28, 2023 at 12:18 AM

#2,081,179

Replying to vettewiz (#2,081,109)

Doesn't property value appreciate though, generally speaking?

vettewiz t1_jaad1iv wrote on February 28, 2023 at 12:20 AM

#2,081,274

Replying to chris886 (#2,081,179)

Not until you sell it. On a given year, you will deduct the purchase price of the property (minus land value), divided by 17.5 I believe. IRS uses a depreciation schedule of 17.5 years for real property.

chris886 OP t1_jaaert9 wrote on February 28, 2023 at 12:32 AM

#2,081,758

Replying to vettewiz (#2,081,274)

Nice. Thanks!

shadow_chance t1_jaaiwgl wrote on February 28, 2023 at 1:02 AM

#2,083,075

Replying to chris886 (#2,080,685)

To be clear, your primary vehicle doesn't magically become a business vehicle that suddenly is saving you 100% on your taxes. You can deduct the use of your vehicle that is used on the business.

chris886 OP t1_jaaktxg wrote on February 28, 2023 at 1:16 AM

#2,083,602

Replying to shadow_chance (#2,083,075)

Lol, yes I did figure it was for just the business use. That’d be nice though right!

Thisismypasswprd t1_jaal8ah wrote on February 28, 2023 at 1:19 AM

#2,083,717

Replying to shadow_chance (#2,083,075)

The business can also buy it. There are different ways to go about this... I just wanted to paint a picture. Any more info and I'd have to start charging consultant fees

shadow_chance t1_jaallmr wrote on February 28, 2023 at 1:22 AM

#2,083,821

Replying to Thisismypasswprd (#2,083,717)

And it's still limited to business use the % you can deduct.

Knipfty t1_jaaluq4 wrote on February 28, 2023 at 1:24 AM

#2,083,882

Replying to chris886 (#2,079,942)

But you need to have some payroll. No business runs without human input. So you need to take a reasonable salary.

Thisismypasswprd t1_jaamgv4 wrote on February 28, 2023 at 1:29 AM

#2,084,079

Replying to shadow_chance (#2,083,821)

I keep my work vehicle separate but yes it's all relative. The business would want to buy it to write off the depreciating asset that an individual cannot do

DeluxeXL t1_jaaool4 wrote on February 28, 2023 at 1:45 AM

#2,084,716

Replying to Knipfty (#2,083,882)

>So you need to take a reasonable salary.

For S corp and C corp yes.

For sole prop and disregarded entity, doesn't matter.