How do I setup an S-CORP for rental/investing (stock trading) business

[rysmbu]

I am thinking of setting up S-Corp and have few questions.

Expected Business activities :
1) Rental business for property to be owned by the S-Corp
Revenue : 20K approx.
Income after expense will be less than 14K
2) Investment / Stock Market Trading

Questions

1. Is Rental business and Investing considered purely a passive Income activity
2. Can I take all Rental Income as distributions without paying myself a salary
3. If I need to pay myself salary, what should be the guidelines
4. If I have a Trade windfall and have capital gains of 50-100K in a year, can all be taken as distribution after taxes
5. What is the probability that IRS will look at this setup and impose fines and cancel S-Corp election, if there is ZERO payroll taxes

 

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[MJ DeMarco]

@CareCPA might be able to help, otherwise you need a lawyer/accountant combo.

What is the probability that IRS will look at this setup and impose fines and cancel S-Corp election, if there is ZERO payroll taxe

If you show decent profits and ZERO salary (hence, ZERO payroll taxes) then I'd say there is a decent chance for an IRS peek. My accountant said I needed to pay myself a salary that is of fair market value.

If I have a Trade windfall and have capital gains of 50-100K in a year, can all be taken as distribution after taxes

In a non-operating entity, I think any such gains are taxed at your marginal rates, assuming those gains are Short Term. I'm not an accountaint, just trying to remember the conversations I had with my own personal accountant.

 

[lludwig]

for #2 I've always been told that's a bad idea and best to take the profits out and do it personally. Especially for an S-corp since it all flows to you personally anyways.

C-Corp that may more sense but that may change if C corp tax rates go up.

A better way to shield taxes for investing is usually is set up a Solo 401(k). Which in 2021 can be a maximum of $58,000/year ($64,500 if age 50 or over).

That has many requirements including a high income flowing to you personally but it's a great deal as a biz owner.

solo 401k contribution limits and types

Two parts make up the annual Solo 401k contribution: employee salary deferral contribution and employer profit sharing contribution.

www.mysolo401k.net

 

[CareCPA]

This doesn't make any sense.
One of the main benefits of an S Corp is avoiding self-employment/FICA tax on earnings above your "reasonable salary."
Rental income is not subject to self-employment tax.
Capital gains are not subject to self-employment tax.

Why would you setup an S Corp (or, more correctly, an LLC or Corporation taxed as an S Corp) if there is no tax benefit?

In any S Corp, if you take zero salary and take it all as distributions, you will eventually hear from the IRS. It may take a couple years, but they'll notice. It's one of the main audit points recently.

 

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