Is it legal for my LLC to pay me rent for using half my home as a cat boarding business?

Thanks for the explanation. My first accountant never mentioned this issue in 5 years! So if I understand correctly, even though my LLC is legally separate from me personally, the IRS doesn't see it that way for tax purposes? Also, what about all the capital improvements my LLC paid for? The business funded a separate entrance, special flooring, built-in cat condos, a dedicated HVAC system, and other significant modifications. Would those still be deductible business expenses?

Yes, that's right - even though your LLC is legally separate, for tax purposes a single-member LLC is typically considered a "disregarded entity" unless you've elected to have it taxed as a corporation. The IRS essentially sees you and your LLC as the same taxpayer, so you can't create a rental arrangement with yourself. The capital improvements your LLC paid for would still be deductible business expenses. Those are legitimate costs of running your business. The issue is specifically with the rental arrangement. Your LLC can absolutely pay for improvements to the space it uses - that's not in question. You just can't pay yourself rent to avoid self-employment tax if you're operating as a pass-through entity.

Does this tool actually connect you with a real tax professional or is it just some AI thing? I'm in a similar situation with my photography business taking up about 40% of my home, and my accountant is giving me conflicting advice about rental vs. home office deduction.

I'm skeptical about these online tax tools. How does it compare to just hiring a good CPA? And is it actually specific to LLC rental issues or more general? My husband and I have a counseling practice in our basement that our LLC pays us rent for, and we're wondering if we're in the same boat.

It connects you with tax professionals who review your specific situation after the AI does its initial analysis. It's not just an algorithm making recommendations - you get actual expert eyes on your situation. For photography business taking up 40% of your home, it would analyze factors like whether you've elected S-Corp status, how you're currently documenting expenses, and whether your current setup would raise red flags with the IRS. The tool is designed to find these specific issues that many CPAs miss. It's specialized for small business owners, including those with home-based businesses and various LLC arrangements. Your counseling practice in the basement would definitely fall within its wheelhouse. What makes it different from just a CPA is that it uses data from thousands of similar cases to identify audit risks most accountants might miss unless they specialize in exactly your situation.

How does this actually work? I've been trying to reach the IRS for weeks about a similar home office question. Do they just call for you or what? Seems too good to be true.

Yeah right. No way they can get through faster than anyone else. The IRS phone system is completely broken. I've called 23 times in the past month trying to fix an issue with my business taxes. This sounds like a scam to me.

They use an advanced calling system that continuously redials and navigates through the IRS phone tree until it reaches a human agent. Once someone answers, Claimyr calls your phone and connects you directly to that agent. It's basically like having someone sit and redial for you constantly until they get through. It's legitimate - they don't ask for any personal tax information. They're just getting you past the hold time. When I used it, I was connected to an IRS agent in about 12 minutes, and I was able to get clarity on my home office situation and avoid potential penalties.

That's an interesting option I hadn't considered. How complicated was the process of converting to an S-Corp? And did you notice significant tax savings after making the switch? I'm also wondering if there are any downsides to S-Corp status that I should be aware of.

Converting to an S-Corp was pretty straightforward. You just file Form 2553 with the IRS. The deadline is typically 2 months and 15 days after the beginning of the tax year in which you want the election to take effect, but you can also apply for late election relief if needed. I did see significant tax savings - about $7,500 in my first year - because only my salary (about 60% of my total profit) was subject to self-employment tax. The rest I took as distributions. The main downsides are more paperwork (you need to run payroll, file quarterly payroll tax returns, etc.) and you have to be careful about setting a "reasonable" salary. If the IRS thinks your salary is too low, they could reclassify your distributions. Also, you'll have some added expenses for payroll services and possibly higher accountant fees for the more complex tax return.

That exclusive use requirement is so tricky! I have a home daycare and the IRS has different rules specifically for daycare providers. We can claim spaces that have mixed use (like kitchen, bathroom) based on time used for business. I wonder if there's any similar exception for pet boarding? Might be worth looking into.

That's a really good point. Do you think I need to file amended returns for previous years? Or could I just start doing it correctly going forward? I'm a bit worried about opening a can of worms if I start amending returns.

Generally, if you discover an error on past returns, you should file amended returns. However, there's a 3-year statute of limitations on most tax issues, so you'd typically only need to amend returns from the past 3 years. That said, this isn't necessarily a black-and-white error. There are legitimate situations where rental arrangements between yourself and your business can be appropriate, especially if you have the right business structure. Before amending anything, I'd recommend getting that third opinion from someone who can look at your specific situation. If you do need to amend, a tax professional can help you present the changes in the most favorable light, possibly reducing or eliminating penalties. Sometimes when you self-disclose and correct issues, the IRS is more lenient than if they discover the issue during an audit.