Tax Question - Mixing real estate commissions and Rental Income

[Dakota Mivshek]

Hi there, 

I have a tax related question. Things moved quickly these past few months, which has resulted in the creation of an LLC (S Corp status), Real estate sales commissions, & rental income.

Current status: Real estate commission income and real estate rental income are coming into the same LLC. Is that an issue?

I'm record keeping, but any advice would be great. What systems do you all have in place for solid record keeping come tax time. 

[Linda Weygant]

The other thing you'll need to be careful of - if 20% or more of your income in the S-Corp is passive (ie, rental) income, then the IRS can choose to invalidate your S-election and you will revert to a C-Corp (usually) not an LLC, so you'll have a mess to untangle.

Best practice is to hold your rentals in an LLC and your commissions through the S-Corp. As @Daniel Hyman indicates, you MUST also pay yourself a reasonable salary, file federal and state payroll tax forms quarterly, sign up for unemployment insurance and, in some states, pay mandatory worker's comp insurance.  Make sure you know and understand all the rules because the IRS doesn't allow ignorance of the rules as an adequate excuse when they start assessing penalties.