Tax Advice Needed working with friend

[Kyle Tom]

Hi BP Members!

I’m finally starting my real estate business idea and am looking for a tax person to give advice / work with.

My girlfriend and I focus on buying fixer-upper properties in Ohio to rehab them to hold long term. To manage the rehab/contractors, we’re sending out a friend named Dan.

Since Dan works for the business and is willing to temporarily relocate, I want to write off the transportation costs (airfare & Uber rides), work phone expense, as well as a per Diem for meals (~$30/day).

For it to be a deductible expense, I assume he either needs to work for the business or be like a 1% owner.

If Dan doesn’t want to take a paycheck, can we still consider him an employee and write off his expenses? Or do we need to make him a 1% owner and have him not take a draw/salary until we grow our business.

Would love to hear your thoughts and if you have recommendations for people to reach out to. I’m new to this and ready to learn!

[Eamonn McElroy]

Are these $50k properties in OH or do they have scale?

You said: "finally starting my real estate business idea". How is your ROI going to be affected if you're reimbursing Dan's airfare, meals, transportation, and lodging costs, in addition to paying him reasonable comp? That's certainly nice of you, but it's unusual to see that type of arrangement between arms-length parties. A management company located in OH would certainly have a cost advantage and better local knowledge (i.e. a more compelling value proposition) than flying a buddy out from CA multiple times a year.

The decision to give him equity shouldn't be taken lightly.  You don't need to make him an owner to do what you want to do.  And anecdotally, I would advise against it.