Question:
I have a business that generates income, and I am thinking about starting another business buying property. Can I use the expense from buying a house with the property company, to lower my taxable income that I am getting from the first business?
Answers:
Yes, but there has to be a genuine business purpose to move income and expenses between the businesses. The IRS frowns on moving income and expenses around just to reduce taxes. Your best bet would be to have some kind of management fee or rental expense charged to the company that has income, and have management income or rental income credited to the company that has expenses.
If these are single member LLCs and are reported on your 1040, the loss on one should offset the income on the other.
If these are not single member LLCs, the income and loss will show up on page 2 on your schedule E and effectively cancel each other out.
If your LLC that generates income is subject to self employment tax, it would be a good idea to "shift" the income. A LLC involved in rental real estate would not be subject to self employment tax. Any "shift" in income would have to have a legitimate business purpose. For example, does the income producing LLC rent from the real estate LLC? As long as the rent is reasonable, this is a good way to shift income.
In our professional opinion, there are many factors at play here and our suggestion would be to review http://www.irs.gov/faqs/faq12.html... which speaks about issues relating to classification etc. depending on entity formation, treatment of the LLC for example and other factors will always determine the treatment in many cases. We have many great articles on LLC as well so you may wish to review them in our search feature on our site, http://www.bcbsinc.com. The answer to this question may take much time and then all factors are not known so our suggestion is to review treasury at www.irs.gov and check. They have many valuable resources and may help you also. That is our suggestion overall. Sorry can't be of more help but every situation differs and the treatment of tax will vary greatly. Wayne
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