Single Member LLC filing form 8832 (S corp taxation)--can I deduct recent expenses?

I have several LLCs I use for my real estate investment business. I want to designate one--let's call it "LLC-S"--that I use for short- term deals to be taxed as S corp, since I pay ordinary income tax rates on those deals anyway. But I cannot really deduct non-basis expenses (like travel to properties, some are far away) related to those on a Schedule E like I can for my rentals, so as of now, I just don't deduct them at all. If I file IRS 8832 today, am I still able to deduct expenses (like the pricey seminar I attended in November) relating to "LLC-S"s activities that occured earlier this year or even in previous years? These are expenses I haven't figured out how to deduct. My CPA is no help, she just plugs my numbers into her software and gives me the results, and won't advise me (yes, I know, I'm shopping for a new one now).

Once so designated, can my "LLC-S" buy health insurance (an HSA?) for me, or is that deduction only for C corps? I understand insurance may be counted as income to me. What kind of retirement benefits may be deductible to "LLC-S" if I put $ into a retirement fund (IRA? 401k?) for me? What if I hire my wife (or even make her a partner in the LLC), can I deduct her insurance too, and/or have "LLC-S" contribute to her existing IRA?

Finally, I have a couple of recently-bought properties I want to deed into "LLC-S" before I sell them. Should I do that before or after I elect S corp taxation from the IRS via form 8832? Any advice is much appreciated, thank you!

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And why not? If you are "in the business of".....this activity, all legitimate "ordinary and necessary" expenses are deductible. A Single Member LLC (SMLLC) is taxed as a sole-proprietor on Schedule C, deduct your business travel, etc there.

Any previous year's expenses belong in those previous years. Amended returns may be in order though.

You'd have to be an employee of the business for any of that to apply at all......

Then health insurance is not a deduction for hte "S" corporation. It falls though, to the front of the 1040 deductible in full (for greater than 2% shareholders).

There are differing rules for the types of pensions. All though are based on **EARNED** income - so net profits from self-employment or partnership activities, and wages from your "S" corporation.

Yes, your spouse can be an employee of the business. Husband and wife shareholders fall into the same trap for the >2% shareholder rules as to the deductibility of health insurance...see above for how that gets handled.

If you take an existing LLC and elect corporate tax treatment, then elect "S" status, it's probably going to be effective for next year....2008....right.

Remember that the election with the IRS does not change the legal entity as the state sees it (so you're still an LLC by state law). Talk to a competent attorney about the laws of your state and how you might be impacted by your plans.

Reply to
Paul Thomas, CPA

You really do need a new accountant and an education about taxation!

First, changing the type of entity will NOT solve your problem. If the items are deductible by an S Corp they are just as deductible by an LLC or even a sole proprietor.

Second, you may be reporting things incorrectly (assuming I've interpreted your post correctly). If you're engaging in short term real estate deals - and I assume that means you are buying and selling real estate - that activity belongs on a Schedule C for a SMLLC NOT on Schedule E. If you're not engaging in the short term purchase/sale of real estate exaclty what are you doing that you classify as short term deals?

Thirdly, health insurance paid by an S Corporation on behalf of a 2% or greater owner gets the same tax treatment as if it were paid by a sole proprietor. The premium is considered income and is reportable on your W-2 then you get to claim an adjustment to income for self employed health insurance, assuming you have net income from the business.

Fouth - retirement programs are pretty much available across the board to just about any type of entity. There is at least one program - an HR plan, often called a KEOGH Plan - that is available ONLY to self employed persons. And self employed can be Schedule C, Schedule E, Schedule F, or a member in an LLC or a partner in a partnership. Otherwise, just about any business can set up a defined contribution or defined benefit plan.

As you're already realized, you need a tax professional that is experienced with planning and willing to work with you. One of your options is to go to

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- the National Association of Enrolled Agents, Federally Licensed Tax Professionals - and search for an EA in your area. I am not sure whether the AICPA has such a referral section on their web site. But you definately need a planner to work with.

Good luck, Gene E. Utterback, EA, RFC, ABA

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