Strategies for paying yourself from a Series LLC

[Max Malec]

Hi BP, 

I am finishing up my second deal and my first deal as a serious investor. I purchased the house in cash and paid for the renovations out of pocket. At the direction of my CPA and attorney, I then created a single member Series LLC including one Master (umbrella) LLC holding a checking account but no other assets, and one sub-LLC owning the house and two bank accounts - 1) an Operating account in which the rent is collected and maintenance/property management fees are paid and 2) a Tax account that collects a monthly deposit from the Operating account to hold and pay for all taxes.

I plan to purchase other properties and create a new sub-series LLC under the Master LLC for each property.

My question is: how do I pay myself the net income from the rents into my personal account? Am I able to set up a recurring monthly transfer from the sub-LLC Operating account to my personal bank account as a type of salary? Should I pass the income from the sub-LLC into the Master LLC before paying it to myself (this may make sense once I have several LLC's all collecting rent so that my personal income would all come from one source)? If I have unspent money in the operating account quarterly/annually, can I pay that to myself as a bonus?

If anyone has experience paying yourself income from a single member LLC (ideally a Series LLC), I would be eager to hear your experience with best practices and things to avoid.

I am in the DFW area in Texas and I understand Series LLCs are not legal in every state and laws may differ, I am just interested in hearing how people pay themselves from their LLC. Thank you in advance!

Best, 

Max

[Christopher Brainard]

@Max Malec

You should consult the CPA/Attorney that set this up for you :) 

With that being said, if you formed a single member LLC, its likely that the master LLC entity was setup as a disregarded entity with the IRS (IE: has a single IEN, doesn't file its own return, and appears on your Schedule C and/or E). This is how we used to have things setup. The physical location of the money is pretty irrelevant to the IRS, you owe taxes on the rental income as it comes in and on any sale of the assets that you make, just as if it were in your own name.

Alternatively, I have a friend that gets a new EIN for every property and files every tax return separately, but (to me) this defeats the purpose of having a Series LLC and becomes very costly at tax time.

If you want to have W2 income and have a bonus (ie: dividend) to lower your SE Tax liability, you need to look into S Corp taxation. This could potentially lower your overall tax liability, but may make things slightly more complicated from an administrative perspective. 

-Christopher