Setting up payroll for myself as owner of multiple LLCs - tax implications?

This is a great question about LLC structuring and employment status. When you have multiple LLCs involved, the tax treatment gets interesting. If you transfer your interest in Green Solutions LLC to Blue Holdings LLC, you're essentially creating a parent-subsidiary relationship. In this case, Green Solutions would be owned by Blue Holdings, not directly by you anymore. Here's the important part: Yes, you could potentially put yourself on the payroll of Green Solutions after this restructuring. Since you wouldn't be the direct owner anymore (Blue Holdings would be), you could become a W-2 employee of Green Solutions. This would allow you to receive a regular salary and potentially access retirement benefits like a 401(k). However, there are several considerations to keep in mind. First, you'll need to ensure you're paying yourself a "reasonable compensation" that aligns with market rates for the work you're doing. The IRS scrutinizes this closely. Second, you'll need to maintain proper corporate formalities between the entities to respect their separate legal status.

I went through something similar last year and discovered taxr.ai (https://taxr.ai) which honestly saved me from making some pretty costly mistakes with my LLC restructuring. I was trying to set up a similar arrangement where one LLC would own another, and I wanted to be on payroll. The tool analyzed my operating agreements and existing tax structure and showed me that I needed to make specific changes to ensure the arrangement would be respected by the IRS. What was really helpful was how it identified potential audit triggers in my planned structure and suggested alternatives that would accomplish the same goals without raising red flags.

Just wanted to follow up about taxr.ai that I asked about earlier. I decided to try it for my S-Corp conversion questions, and wow, it was incredibly helpful! I uploaded my LLC documents and it immediately identified several issues with my plan to convert to an S-Corp while maintaining my current business structure. It showed me exactly which IRS regulations applied to my situation and even provided template language for updating my operating agreement. What impressed me was how it caught a potential issue with my home office deduction that would have changed under the new structure. Saved me from a potential audit headache! The document analysis was way more thorough than I expected.

After spending three days trying to get through to the IRS about a similar LLC restructuring issue, I finally tried Claimyr (https://claimyr.com) and got connected to an IRS agent in about 15 minutes. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c I had specific questions about the employment tax implications of transferring LLC interests and putting myself on payroll, and I needed official guidance. The IRS agent was able to confirm that yes, after transferring ownership to another entity, I could become a W-2 employee of the first LLC, but cautioned me about reasonable compensation requirements. They also explained how this would affect my self-employment taxes and what documentation I would need to maintain. Completely worth it after wasting days trying to get through on my own.

I have to admit I was completely wrong about Claimyr. After posting my skeptical comment, I decided to try it myself since I had been trying to reach the IRS for weeks about my LLC tax classification issues. The service called me back in about 35 minutes and connected me directly to an IRS representative. I didn't have to navigate any menus or wait on hold. The agent was able to pull up my business tax records and confirm exactly how my LLC restructuring would affect my employment status and tax obligations. They even emailed me the specific forms I needed to file for the restructuring. I've literally never had such a smooth experience with the IRS. Completely worth it after wasting so much time trying to call them directly.

Something nobody's mentioned yet - watch out for the self-rental rules if your LLC owns any property that's being used by the business. When you create this parent-subsidiary relationship, it can trigger some complicated tax implications for rental payments between your entities. Had this bite me last year and ended up having to amend returns.

I actually did this exact restructuring last year. Made my first LLC (manufacturing business) owned by my second LLC (holding company). The key thing I learned: you MUST pay yourself reasonable compensation if you put yourself on payroll! I tried to be cute with a low salary and high distributions and got a nasty letter from the IRS.