LLC, S Corp, or Partnership? | Real Estate Investor Tax Mistakes to Avoid

Mistake #1: Rentals Inside an S-Corp

S-Corps are great for operations — terrible for rental properties. Transfers trigger taxable events, and distributions can create nightmares.

Fix: Keep rentals in LLCs, and use an S-Corp for your active management or flipping business.

Mistake #2: Mixing Flips and Rentals

Flipping income is active; rentals are passive. Mixing them means your whole portfolio risks self-employment tax.

Fix: Separate entities for flips, rentals, and management.

Mistake #3: Ignoring Multi-State Nexus

If you invest across states, each LLC may need to register in multiple jurisdictions — and missing that creates audit exposure.

Mistake #4: Paying Yourself Incorrectly

Draws vs. salaries matter. Paying yourself wrong in an S-Corp can flag the IRS faster than any deduction.

The Optimal Setup

• LLCs for asset ownership.

• S-Corp or management company for operations.

• Partnerships or trusts for joint ventures and estate planning.

Internal Link Prompt: Explore our [Entity & Tax Planning Services → /services/tax-planning]

CTA:
Not sure if your structure is costing you?
Schedule a Strategic Tax Blueprint Session with Strategic Planning Advisors to optimize your entities and protect your cash flow.

About the Author:
Frank Alcini, CPA, specializes in entity optimization for investors and business owners, helping clients eliminate structural tax leaks and scale with confidence.