Best tax setup for LLC?

[Corinna Gossner]

My husband and I just founded an LLC to hold our first investment property (triplex). I am thinking to elect federal taxation as a sole proprietor (which is possible as a married couple in California). I am a bit unsure though, especially after the tax reform last year. Does anyone have any insight if there is a disadvantage with this election as opposed to taxation as a partnership or S corp?

These are some of the statements I found that made me think single member LLC with taxation as sole proprietor would be best:

- 1031 exchanges are only possible for single member LLCs
- With an S corp taxation I have to pay myself (and my husband?) a salary before taking any money out
- Self employment tax is not due, as the only income of the LLC will be rental income
- If the LLC shows a loss in the first year it will be easier to carry this over to the next year if not taxed as S corp

Thankful for any advice!

[Ashish Acharya]

@Corinna Gossner , 

• You should not be putting the Triplex in the S-corp for so many reasons that you can read on other posts.
• The rental income is not subject to SE tax no matter where it comes from ( LLC or Scorp).
• Both LLCs and S-corp is a pass-through entity, this loss flow to you the same way and carried forward. There is no difference.

Yes you are right, Per Rev. Proc. 2002-69 and 2002 C.B. 831, a husband and wife who are the sole owners of an LLC and reside in a community property state can choose whether they are treated as a partnership or disregarded entity.

You have to understand that tax and legal matters are different. 

1) for tax, you will be reporting on your personal return, Schedule E.

2) for legal purpose, LLC is a separate entity, and it has to be treated separately from your personal finance. Separate books, bank accounts, name on the lease and many more.