Renting a business property to my LLC

[Sasang Doc]

Hello Fellow BPers,

My LLC owns a business property where I've run another LLC business for the last 17 years. I'd like to start renting to myself (my LLC commercial prop renting to my LLC business running out of it full time). This seems like a perfectly legit thing to do in the eyes of the IRS but here are my IRS audit concerns…

1. By renting (at fair market value) to my LLC, my tax bill will suddenly reduce to almost half of its current amount (Yay! But we've been paying a similar amount for the last 17 years and renting to myself would be the only changed variable – red flag?)
2. I’m hoping to apply this change to last year’s taxes but we do not have a paper trail for one year yet. Perhaps we should start from here onward with lease written, account open, and monthly paystubs to avoid audit nightmare?

Thanks for the advice ya’all!

[Chris Picciurro]

Income shifting to a related entity can be a good tax strategy. Simply charge yourself fair market value rent and the IRS will be satisfied. It will hopefully allow you to be taxed on rental income and avoid self employment tax (I am not sure of your situation). My advice would be to use this strategy moving forward instead of going backward due to a lack of paper trail.