Mixing Passive and non-Passive income?

[Mitch Kronowit]

I already have an e-mail into my attorney/CPA with this question (so don't bother telling me to check with one), but while he's answering the 80 or so e-mails before mine, I thought I'd post this question here to get some quicker answers and/or ideas for other things to ask.

I currently have a California LLC formed to hold our two rental properties. Hence, all the income is considered passive. If my LLC were to generate some non-passive income, would that make ALL the income non-passive or can I simply separate them from each other?

For example, let's say there is a company that wants my LLC, ergo me, to perform some services for them. This would clearly not be passive income. If I were to perform this work and have my LLC send them the bill, would these earnings "contaminate" my passive income thereby screwing up my tax situation?

I would like to simply keep the two streams of income separate and treated accordingly rather than set up yet another entity, like an S-Corp.

Thanks everyone!

[Account Closed]

The LLC can be involved in both passive and non-passive activities. For tax purposes the activities are reported separately.