minority partner in employers LLCs for builds, W2 or 1099 ?

[Matt Lockwood]

Hi all,

Just graduated college and I'm getting my start in REI in San Carlos, Redwood City, and the general Bay Area in CA. I'll be employed as a foreman on our construction sites building spec homes. Im getting paid on salary but in addition to this I will be a minority partner in each LLC we form for each house we build. This means that I will be paid out when we close escrow on each build. My employer has given me the option to be on payroll or to be paid as a 1099 contractor. Need to decide which way I will set it up. I'm planning to have a consultation with a local professional about this but I also wanted to see if anyone on here has any insight to offer as far as tax strategy, deductions, etc.

Thanks!

[Chris Mason]

@Matt Lockwood,

From the mortgage perspective, which is what I know...

• Get on payroll as a salaried W2 employee for the foreman job, or it's a 1-2 tax year wait until you can get in the game yourself as an REI because of mortgage guidelines.
• Write off as much depreciation as possible (as much as your CPA says you can lawfully write off), but no meals and entertainment (unless your CPA says it's unlawful not to write it off). 

For the per-house LLC thing...

• If it's going to be a one-off LLC each time, that'll probably never count as income for mortgage purposes. That money can be an asset (eg, something used for a down payment), but it will probably never be income (eg, something used to qualify for a larger mortgage).
• If it's the same LLC used each and every time, boom qualifying income after a couple of years. And once the money is sitting in a personal (not LLC) checking account for a few months, it's an asset too. That applies to you and your soon-to-be-peers.

Couple other things that may or may not be an issue, but you can get financed relatively quickly out of college if you line your ducks up right.

For most people, you take whatever is going to pay you the most money and it would be silly to let mortgage stuff impact that. For REI, sometimes it is necessary to include opportunity cost of not being able to obtain the mortgages they might want in that cost-benefit analysis.