I paid a contractor to make roof repairs to a house in my LLC. How can I deduct this cost?
This new roof should go on the 2016 LLC business return, but you probably won't be able to expense the entire roof as a repair.  A new roof is most likely a capital improvement, which means that it would need to be depreciated over many years instead of expensed all in 2016.  The depreciation period for a residential rental property is 27.5 years.  Please consider seeking a CPA or Enrolled Agent for the preparation of your LLC business return. See also: IRS Tangible Property Regulations FAQ list When you made the loan to the LLC (by paying the contractor and making a contract with the LLC), did you state an interest rate?  If not, you and your brother should correct the contract so that an interest rate is stated, then follow it.  The LLC needs to pay you interest until the loan is paid off.  You need to report the interest income on your personal return, and the LLC needs to report the interest expense in its business return.
All of RonJohn's reasons to say no are extremely valid. There are also two more. First, the cost of a mortgage is not the only cost of owning a house. You have to pay taxes, utilities, repairs, maintenence, insurance. Those are almost always hundreds of dollars a month, and an unlucky break like a leaking roof can land you with a bill for many thousands of dollars. Second owning a house is a long term thing. If you find you have to sell in a year or two, the cost of making the sale can be many thousands of dollars, and wipe out all the 'savings' you made from owning rather than renting. I would suggest a different approach, although it depends very much on your circumstances and doesn't apply to everybody. If there is someone you know who has money to spare and is concerned for your welfare (your mention of a family that doesn't want you to work for 'academic reason' leads me to believe that might be the case) see if they are prepared to buy a house and rent it to you. I've known families do that when their children became students. This isn't necessarily charity. If rents are high compared to house prices, owning a house and renting it out can be very profitable, and half the battle with renting a house is finding a tenant who will pay rent and not damage the house. Presumably you would qualify. You could also find fellow-students who you know to share the rent cost. "Neither you nor others have mentioned the costs of being a homeowner.  First, there are monetary costs. If you own a house, you have to pay taxes. They will vary by jurisdiction, but are usually not zero. You also need insurance, which again comes with monthly rates.  Then, once in a while, you'll be hit with unpleasant lump sum payments. In 30 years, the mortgage is over and you own the house - but by that time, it will probably need a new roof. That's in the price range of a new car. And over that time, you'll rack up several other repairs which your landlord covers when you rent.  Another thing which feels less like an expense emotionally but ends up thinning your wallet is the cosmetic changes you make just because it's your own home. You wouldn't put marble floors in the bathroom if you rent, but you might be tempted to if you live in the house. It might be even worth it from a life satisfaction point of view, but we are talking finance right now, and that's a minus.  And then there are the opportunity costs. A house binds you geographically. You may pass up on a nice job offer because your house is too far away, for example. Or you might experience liquidity problems, because a house is difficult to turn into money in a hurry. If you are able to do so, it is usually a much larger sum than you need, and you are paying the costs inherent in that large transaction. These are just examples, you can probably come up with more costs.  Then, it is not sure how much money you can get of the house if you change your mind. Say you take this job at the other end of the country, or you become a parent of four and need more space. At the time you decide to sell, the market may have gone down due to the overall state of the economy, or to the house location's popularity, or your own house may have turned undesirable (what if you get a mold infestation which would only go away if you strip it to the concrete and rebuild?) You could let it to renters, but that's a hassle of its own. It takes time to find renters, it may be expensive (income tax, regulations like Energieausweis in Germany), it is risky (if they don't pay, you might not see money even if you sue them).  Then there is the problem that prices reflect not some kind of ""true"" value, but the intersection of supply and demand. And the home market is not as efficient as in a first semester microeconomics textbook. The buyers of private homes deal in small volumes, have little knowledge in the market, pay intermediaries' cuts, and are emotionally attached to the idea of ""owning my own house"". This drives demand up and creates higher prices than if you had perfectly rational actors on both sides. People pay money for the feeling of being home owners, so those who forego spending on that feeling have more money to invest in something else.  Owning something always causes expenses. You have to calculate the savings of having the house vs. the expenses of having it, before you can decide if it is a good deal or not. If you only calculate one side of the equation, you'll be badly mistaken." Your calculations are good as far as they go, but there are lots of other factors and pros and cons to each decision. Yes, you should certainly compare the monthly rent to what your mortgage payments would be, as you have done. Yes, you should consider how long you might live there. If you do move out, how difficult will it be to sell the house, given market conditions in your area? If you try to rent it, how difficult is it to find a tenant, and what rent could you expect to receive? Speaking of moving out and renting the place: Who will manage the property and do maintenance? Would you still be close enough to do this yourself? Would you be willing and able to spend the time? Or would you have to hire someone? Also, what if the tenant does not pay the rent? How difficult is it to evict someone in your area? Speaking from personal experience, I own a rental property in Ohio, and the law says you can evict someone with 3 days notice. But in practice they don't just leave, so then you have to take them to court. It takes months to get a court date and months longer before the police actually show up to order them out of the house. And you have to pay the lawyer and court fees. In that time they're living in your property rent free. In my case one tenant also totally trashed the place and stole everything that wasn't nailed down -- I had to spend $13,000 on repairs to a house worth a fraction of what you're talking about. Being a landlord is NOT just a matter of sitting back and collecting rent checks: there's a fair amount of work and a lot of risk. What do you have to pay the realtor, and what other closing costs would you have to pay? Where I live, realtors typically charge 6 to 7%. You may also have to pay for an appraisal, title search, and bunch of other little fees. Mortgage interest is deductible on your federal income taxes. Rent is not. If you own and something needs to be repaired, you have to pay for it. If you rent, the landlord has to pay for it.  If you own, you can do pretty much what you like with the property -- subject to zoning ordinances and building codes and maybe homeowners association rules, but you should have a pretty good amount of leeway. If you want to install ceiling fans or remodel the kitchen or add a deck, it's up to you. If you're renting, it's up to the landlord to decide what you can do to the property. And if he agrees to let you do some upgrade, when you're done, it belongs to him. With a condo, you are not usually responsible for exterior maintenance, like mowing the lawn and trimming the bushes and washing the outer walls. With a house, you are. You might pay someone to do this, which adds to the cost, or you might do it yourself, which takes time. Insurance on a condo or aparment is much less than insurance on a house. In my area, anyway. You should investigate those costs. If you buy, eventually you own the place and don't have to pay a mortgage any more. If you rent, you continue to pay forever. (Even if you don't live in the same house forever, as long as you don't take a terrible loss when you sell you should then have some money left over to apply to the next house, so you are still building equity.) Some of these pros and cons are easily quantifiable. Others are probabilities, like how likely is it that your water heater will fail?, and how long is it likely to take to find a buyer if you want to sell? And others are pretty subjective. Depends on the house. If it's a house that's <10 years old, you're looking at pretty minor repair work. You can probably afford to be aggressive. I bought a home built in 1927 in 2006. Since then, I've put on a roof, replaced windows, replaced hot water tanks, replaced bathroom fixtures and corrected plumbing horrors. Total cost: $20k. Had I spent down savings on a down payment, I would have been in rough shape financially. Other things to think about are: It sounds like something is getting lost in translation here. A business owner should not have to pay personal income tax on business expenses, with the caveat that they are truly business expenses. Here's an example where what you described could happen: Suppose a business has $200K in revenue, and $150K in legitimate business expenses (wages and owner salaries, taxes, services, products/goods, etc.) The profit for this example business is $50K. Depending on how the business is structured (sole proprietor, llc, s-corp, etc), the business owner(s) may have to pay personal income tax on the $50K in profit. If the owner then decided to have the business purchase a new vehicle solely for personal use with, say, $25K of that profit, then the owner may think he could avoid paying income tax on $25K of the $50K. However, this would not be considered a legitimate business expense, and therefore would have to be reclassified as personal income and would be taxed as if the $25K was paid to the owner. If the vehicle truly was used for legitimate business purposes then the business expenses would end up being $175K, with $25K left as profit which is taxable to the owners. Note: this is an oversimplification as it's oftentimes the case that vehicles are partially used for business instead of all or nothing. In fact, large items such as vehicles are typically depreciated so the full purchase price could not be deducted in a single year. If many of the purchases are depreciated items instead of deductions, then this could explain why it appears that the business expenses are being taxed. It's not a tax on the expense, but on the income that hasn't been reduced by expenses, since only a portion of the big ticket item can be treated as an expense in a single year. "TL;DR: Get a tax adviser (EA/CPA licensed in your State) for tax issues, and a lawyer for the Operating Agreement, labor law and contract related issues. Some things are not suitable for DIY unless you know exactly what you're doing. We both do freelance work currently just through our personal names.   What kind of taxes are we looking into paying into the business   (besides setup of everything) compared to being a self proprietor?   (I'm seeing that the general answer is no, as long as income is <200k,   but not certain). Unless you decide to have your LLC taxed as a corporation, there's no change in taxes. LLC, by default, is a pass-through entity and all income will flow to your respective tax returns. From tax perspective, the LLC will be treated as a partnership. It will file form 1065 to report its income, and allocate the income to the members/partners on schedules K-1 which will be given to you. You'll use the numbers on the K-1 to transfer income allocated to you to your tax returns and pay taxes on that. Being out of state, will she incur more taxes from the money being now   filtered through the business? Your employee couldn't care less about your tax problems. She will continue receiving the same salary whether you are a sole proprietor or a LLC, or Corporatoin. What kind of forms are we looking into needing/providing when   switching to a LLC from freelance work? Normally we just get 1099's,   what would that be now? Your contract counterparts couldn't care less about your tax problems. Unless you are a corporation, people who pay you more than $600 a year must file a 1099. Since you'll be a partnership, you'll need to provide the partnership EIN instead of your own SSN, but that's the only difference. Are LLC's required to pay taxes 4 times per year? We would definitely   get an accountant for things, but being as this is side work, there   will be times where we choose to not take on clients, which could   cause multiple months of no income. Obviously we would save for when   we need to pay taxes, but is there a magic number that says ""you must   now pay four times per year"". Unless you choose to tax your LLC as a corporation, LLC will pay no taxes. You will need to make sure you have enough withholding to cover for the additional income, or pay the quarterly estimates. The magic number is $1000. If your withholding+estimates is $1000 less than what your tax liability is, you'll be penalized, unless the total withholding+estimates is more than 100% of your prior year tax liability (or 110%, depending on the amounts). The LLC would be 50% 50%, but that work would not always be that. We   will be taking on smaller project through the company, so there will   be times where one of us could potentially be making more money. Are   we setting ourselves up for disaster if one is payed more than the   other while still having equal ownership? Partnerships can be very flexible, and equity split doesn't have to be the same as income, loss or assets split. But, you'll need to have a lawyer draft your operational agreement which will define all these splits and who gets how much in what case. Make sure to cover as much as possible in that agreement in order to avoid problems later." You should be careful about mingling your personal money and that of the business, even if it is a sole prop right now.  It is a good habit to keep separate business and personal bank/credit accounts just so that when you change to an LLC, it is simpler for you to separate what belongs to the company and what is yours personally.  What you're doing makes it more difficult (although only marginally so) to itemize business deductions that were paid with an ostensibly personal credit account.  The better habit to get into now is keeping that distinct separation between personal and business. That being said, there's nothing illegal in what you're doing, but it would make an accountant cringe, that's for sure. (chuckle) Hope this helps. Good luck! "While the question is very localized, I'll answer about the general principle. My main question is with how far away it is (over 1000 miles), how do   I quantify the travel expenses? Generally, ""necessary and ordinary"" expenses are deductible. This is true for business and also true for rentals. But what is necessary and what is ordinary? Is it ordinary that a landlord will manage the property 1000 miles away by himself on a daily basis? Is it ordinary for people to drive 1000 miles every week? I'd say ""no"" to both. I'd say it would be cheaper for you to hire a local property manager, thus the travel expense would not be necessary. I would say it would be cheaper to fly (although I don't know if its true to the specific situation of the OP, but as I said - its too localized to deal with) rather than drive from Texas to Colorado. If the OP thinks that driving a thousand miles is indeed ordinary and necessary he'll have to justify it to the IRS examiner, as I'm sure it will be examined. 2 trips to the property a year will be a nearly 100% write-off (2000   miles, hotels, etc). From what I understood (and that is what I've been told by my CPA), IRS generally allows 1 (one) trip per year per property. If there's an exceptional situation - be prepared to justify it. Also, keep all the receipts (like gas, hotel, etc.... If you claim mileage but in reality you took a flight - you'll get hit hard by the IRS when audited). Also while I'm up there am I allowed to mix business with pleasure? You cannot deduct personal (""pleasure"") expenses, at all. If the trip is mainly business, but you go out at the evening instead of staying at the hotel - that's fine. But if the trip is ""business"" trip where you spend a couple of hours at your property and then go around having fun for two days - the whole trip may be disallowed. If there's a reasonable portion dedicated to your business/rental, and the rest is pleasure - you'll have to split some of the costs and only deduct the portion attributed to the business activities. You'll have to analyze your specific situation, and see where it falls. Don't stretch the limits too much, it will cost you more on the long run after all the audits and penalties. Can I also write off all travel involved in the purchase of the   property? Although, again, the ""necessary and ordinary"" justification of such a trip is arguable, lets assume it is necessary and ordinary and generally justified. It is reasonable to expect you to go and see the property with your own eyes before the closing (IMHO, of course, I'm not an authority). Such an expense can be either business or investment expense. If its a business expense - its deductible on schedule C. If its an investment expense (if you do buy the property), its added to the cost of the property (capitalized). I'm not a tax adviser or a tax professional, and this is not a tax advice. This answer was not written or intended to be used, and cannot be used, for the purpose of avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code. You should seek a professional consultation with a CPA/Attorney(tax) licensed in your State(s) or a Federally licensed Enrolled Agent (EA)."