LLC Setup for STR Business with Stay-at-home-spouse

[Joshua Saunders]

Hello all,

I'm needing some advice on LLC Setup (or not) for a STR business. Here is my situation:

- I'm a W2 employee that earns north of $500k a year
- My wife is a stay-at-home-spouse
- I'm looking to buy ~ $1,000,000 in STR Real Estate by the end of the year (as an investment and to offset my tax bill)

I'm fairly well versed in the rules surrounding using STR to offset active income. My wife will materially participate in the business and I'll provide the financial backing.

I've talked to a couple local CPAs and done a fair bit of internet searching on legal entity setup for my situation, but haven't been able to get a straight answer. I *think* I'd like to set up an LLC to house the STRs, but I'm struggling on the implications of single-member vs multi-member. In my mind, a multi-member LLC where my wife and I are 50/50 partners make sense, but I don't know if that will cause problems at tax time with counting losses from the LLC against my active income. If I were to create a single-member llc and give my wife 100% control, that seems like I would be at risk of losing everything in case of divorce (god forbid). Any advice is appreciated.

[Collin H.]

Keep looking for a CPA that can properly address your questions. 

[Katie Ripp]

You will still be able to benefit from the losses whether its set up as a MMLLC or SMLLC since you are married.

Main thing to keep in mind from the tax side of things is that MMLLC may have a Form 1065 filing requirement each year and increase your tax prep fees. SMLLC is disregarded and does not have a separate filing requirement (gets reported straight on the Form 1040).

I can't speak to the implications of a potential divorce, I would consult an attorney. 

[Sean O'Keefe]

If your wife is a stay-at-home mom and is involve with managing the rentals you may want to explore Real Estate Professional Status as an alternative tax strategy or along side your STR tax strategy.

[Joshua Saunders]

Quote from @Sean O'Keefe:

If your wife is a stay-at-home mom and is involve with managing the rentals you may want to explore Real Estate Professional Status as an alternative tax strategy or along side your STR tax strategy.

 That's the longer term plan once the last kid goes to school. Right now she'd struggle to meet the 750 hour requirement for REPS.

[Joshua Saunders]

Quote from @Katie Ripp:

You will still be able to benefit from the losses whether its set up as a MMLLC or SMLLC since you are married.

Main thing to keep in mind from the tax side of things is that MMLLC may have a Form 1065 filing requirement each year and increase your tax prep fees. SMLLC is disregarded and does not have a separate filing requirement (gets reported straight on the Form 1040).

I can't speak to the implications of a potential divorce, I would consult an attorney. 

 Thanks for the info!

[Ashish Acharya]

You don't need an LLC for tax benefits. However, based on new IRS audits, we recommend LLCs even with no tax benefit. It helps you establish one economic unit to meet material participation hours.
If you are in higher income tax brackets, I suggest getting a multi-member LLC for audit protection.

[Tanner Bellamy]

I would like to confirm @Katie Ripp 's input but add to it further. The MMLLC will add an extra layer of audit protection being that they are at less of an audit risk than SMLLC's. 

[Ray Williams]

I'll stay away from tax advice. Although a recent learn I had was relating to the LLC and thoughts toward insurability. So often people will want to do an umbrella policy for risk. Getting an umbrella on an LLC is challenging/expensive. What I did on my last STR acq was to increase liability to $1M (PP was ballpark). A few additional savings hacks I layered w insurance, was to move deductible up and find break even sweet spot on annual premium. Not an insurance guy, rather a mortgage broker owner always leveling up.

[Sarah Kensinger]

We used Anderson Business Advisors to help set up our entities correctly and make sure we weren't paying more in taxes due to how the entity was set up. For your situation I would highly recommend reaching out to them and considering their services! It's well worth the peace of mind and saving your time to have Anderson take care of all legal aspects of a STR company!

Lastly, if divorce is in the back of your mind...or your wife's.... as an option when things get rough, don't start a business together. Do something separate until that option is not there anymore. If our mindset is on a certain option, (personal, business, etc.) it's sure to eventually play out.