Owning an investment property in Florida can provide an excellent source of income thanks to the state's high demand for rentals. Managing your investment property payouts strategically can help you make the most of this income.
Forming a rental property LLC is the best way to maximize your benefits as a landlord in Florida. Starting an LLC limits your liability as a property owner and helps you avoid double taxation.
Read on to explore how landlords can manage their owner disbursements when they structure their rental business this way.
1. Consider Your LLC Structure
Like most states, Florida does not limit how many members can belong to your LLC, as long as you declare this when you register your business. These are the different types of LLCs available and how they can impact the landlord payment process:
LLC Taxed as a Sole Proprietor
This type of LLC has only one member. Landlords cannot pay themselves a salary in addition to receiving owner disbursements when they register this type of LLC.
LLC Taxed as a Partnership
With this type of LLC, the partners share the landlord payments amongst themselves according to their distribution rights. These percentages must be stated in the LLC's operating agreement.
Members may not receive salaries and distribution payments in this type of LLC.
LLC Taxed as an S Corporation
This type of Florida LLC allows landlords more flexibility. You can decide to:
- Pay yourself a salary
- Take deductions from company profits
- Decide on a combination of both
2. Calculate Owner Disbursements
Sole proprietors can pay themselves in staggered payments throughout the year based on the LLC's expected profits. Alternatively, they can take a lump sum at their financial year-end.
You can deduct these payments from your company's profits before submitting your annual taxes.
In a partnership, you can make staggered payments or pay disbursements in a lump sum, but you must calculate them according to each partner's distribution rights.
If your LLC is registered as an S Corporation, you may only pay yourself a salary in line with industry standards. Most landlords use the 60/40 rule when paying themselves a salary.
With this method, they calculate their earnings as 40% of their business income from distributions and 60% from their salary. Paying yourself a reasonable salary is the best way to minimize your tax obligations to the IRS.
A tax lawyer or property manager can help you manage disbursements in your best interests.
3. Manage Investment Property Payouts
Precise record-keeping is imperative when distributing owner disbursements. These amounts are tax deductible, so the IRS requires proof of payment when you do your annual taxes.
You can use property management software to help you automate, manage, and record owner disbursements, or hire a property manager to oversee this process.
Simplify Rental Income Distributions
Managing owner disbursements can become a time-consuming minefield for first-time landlords and experienced investors alike. Navigating the complexities of LLCs and taxation can get complicated, and that's why many landlords leave these technicalities in the capable hands of a property management company.
PMI JCM Realty Group is your top choice for managing your investment property finances. We offer a range of effective tenant payment solutions to help streamline rent collection and will provide you with detailed documents for every deductible expense at tax time.
Explore the benefits of working with us today.
