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Best, Lindie Moderator
I understand what you're trying to accomplish, but I think you're risking running into a "substance over form" issue. Form an LLP to act as a holding company, and other LLP's for each property. You can still try having the S-Corp act as the property manager. Have the LLPs show the depreciation and other operating expenses against the rental income.
I don't see this relieving you of your self-employment tax burden, because when you add the project management income to the S-Corp's earnings, your salary from the S-Corp will probably have a corresponding increase. That's not all bad if your salary is approaching the earnings limit making a portion of the LLP's earnings subject to Social Security tax.
Please remember that the health care act now requires companies to issue 1099s to every person and company it pays over $600. This means that the IRS will have a paper trail to link the transactions.
I hope this helps,
In this case, "substance over form" refers to operating and showing passive income in your S-Corp. Just because you create layers to conceal the income, the substance of the actions are still showing this income in the S-Corp. If the IRS looks into the transactions and you are the sole owner of all of the entities, they could combine all of them into one entity under the substance over form doctrine.
Single member LLCs are disregarded entities by the IRS.
I'd advise you not to try to combine the activities.
No, but it would be the same difference as a LLP. You'd have to either file a Form 1120 for the LLC or file a Form 1045 for the partnership.