Management LLC is unnecessary for self-managed properties...

[Davit Gharibyan]

Currently I have a holding llc and a management llc. I own both. I was doing my taxes and my and my accountant suggested not to use a separate llc for my pm company. He explained that it is unnecessary and generates extra taxes since the management fee is not a rental income and is taxed more. He suggested to just use the holding company llc for a particular rental. He told that the only time I would want to use a separate llc is if I am going to manage other's properties. And if I have employees, I should have charge their pay as an expense on a particular property and not on management llc.

He makes sense, however time after time I see companies that do self-managing have a separate llc for management. Can anyone answer why not just do the way my accountant suggested. 

[Charles Carillo]

@Davit Gharibyan

The goal of the self-management LLC is to minimize legal exposure on your holding LLC. First, I would always have 2 LLCs. The holding LLC does no business whatsoever. It just holds the property. All expenses, income, utilities, taxes, etc., go in and out of the management LLC. All vendor accounts/contracts are done with the management LLC as the customer and/or manager. Tenant leases are also done with the management LLC. Second, I do not expect the management company to get paid any fees/income from the Holding LLC. Yes, this management income would be taxed differently and maybe susceptible to FICA. Maybe just stop paying management fees to yourself.

I am not a CPA, or attorney. I would check with both before making any changes.