Myrtle Beach LLC vs S Corp for Rental Property: 2026 Tax Strategy Guide

For the 2026 tax year, Myrtle Beach real estate investors face a critical decision when structuring rental property ownership: should you use a Limited Liability Company (LLC) or elect S Corporation status? This choice directly impacts your self-employment taxes, liability protection, and annual after-tax income. With significant 2026 tax law changes including the reinstatement of 100% bonus depreciation and updated self-employment tax thresholds, the comparison between myrtle beach llc vs s corp for rental property requires fresh analysis based on current regulations and your specific investment profile.

Table of Contents

• Key Takeaways
• Understanding LLC Taxation for Rental Property
• How S Corp Election Reduces Self-Employment Tax
• Liability Protection: LLC vs S Corp
• Compliance Requirements and Filing Deadlines
• 2026 Depreciation Strategies for Real Estate
• Uncle Kam in Action
• Next Steps
• Frequently Asked Questions

Key Takeaways

• S Corp election can save $2,000-$5,000+ annually in self-employment taxes on Myrtle Beach rental property income through salary optimization.
• Both LLCs and S Corps provide liability protection, but S Corps require more compliance and administrative oversight in 2026.
• 2026 bonus depreciation allowance remains at 100%, enabling immediate deductions for property improvements made in 2025.
• Reasonable salary requirement for S Corp shareholders prevents aggressive self-employment tax avoidance strategies.
• South Carolina’s PTE election (pass-through entity tax) may provide additional SALT planning benefits in 2026.

Understanding LLC Taxation for Rental Property

A Limited Liability Company is the default choice for many real estate investors because it provides liability protection while maintaining simplicity. When you form an LLC to hold your Myrtle Beach rental property, the IRS automatically treats your business income in a specific way. For a single-member LLC, all rental income flows through to your personal tax return on Schedule C, which means you pay self-employment taxes on the entire net profit.

Self-Employment Tax Impact for LLC Owners

For 2026, self-employment tax is calculated at 15.3% on your net rental income. This breaks down into 12.4% for Social Security (up to the $184,500 wage base limit) and 2.9% for Medicare (no cap). On a $100,000 annual rental profit from your Myrtle Beach property, you would owe approximately $14,130 in self-employment taxes if your LLC is taxed as a sole proprietorship.

However, rental income from real estate held purely for investment purposes may not be subject to self-employment tax if you’re not actively involved in management. This is a critical distinction. If you hire a property management company and remain completely passive, your rental income might escape self-employment tax altogether. But if you handle tenant communications, maintenance coordination, or other active involvement, the IRS may classify your activity as self-employment income.

LLC Advantages for Real Estate Investors

• Minimal compliance requirements—file one annual return and maintain basic records.
• Creditors generally cannot pursue your personal assets for rental property liability.
• Flexibility in allocating income and losses among multiple members.
• No reasonable salary requirements, unlike S Corps.

How S Corp Election Reduces Self-Employment Tax

An S Corporation election is a tax classification, not a separate legal entity. When you form an LLC and elect to be taxed as an S Corp, your ownership structure remains unchanged. What changes is how the IRS taxes your income. Instead of all rental income being subject to self-employment tax, you split income into two categories: W-2 wages and distributions.

The Salary vs. Distribution Strategy

For your Myrtle Beach rental property generating $100,000 in annual profit, here’s how the math changes with S Corp election. First, you establish a “reasonable salary” that reflects the work you do managing the property. This might be $30,000-$50,000 depending on your involvement level. You pay yourself this salary as a W-2 employee, which means it’s subject to both income tax and 15.3% in employment taxes ($30,000 × 15.3% = $4,590).

The remaining $50,000-$70,000 is distributed to you as an owner, and this distribution amount is NOT subject to self-employment tax. You pay individual income tax on it based on your tax bracket, but you avoid the 15.3% SE tax. On $60,000 in distributions, you save $9,180 in self-employment taxes (15.3% × $60,000).

Income Structure	LLC (Default)	LLC Taxed as S Corp
Annual Rental Profit	$100,000	$100,000
Salary to You (W-2)	$0	$40,000
Distributions	$100,000	$60,000
SE Tax (15.3%)	$15,300	$6,120
Annual SE Tax Savings	—	$9,180

Determining Reasonable Salary

The IRS considers “reasonable compensation” for S Corp shareholders under IRC Section 162. What constitutes “reasonable” depends on the facts and circumstances of your business. For Myrtle Beach vacation rental properties, factors include property complexity, your involvement in marketing, tenant screening, maintenance coordination, and accounting oversight.

Industry guidelines suggest that property managers in Myrtle Beach earn 8-12% of rental revenue for full-service management. If you manage the property yourself, you should pay yourself a comparable salary. For a property generating $100,000 annual rental income, a reasonable salary might be $8,000-$12,000. If your property is more complex (multiple units, furnished vacation rental, high turnover), the percentage increases.

Liability Protection: LLC vs S Corp

Liability protection is often cited as the primary reason for choosing an LLC over individual ownership. When your Myrtle Beach rental property is held in an LLC, the business entity is the legal owner. If a tenant sues you over a slip-and-fall injury, the lawsuit targets the LLC, not your personal assets like your home, car, or retirement accounts.

Whether you elect S Corp taxation does not affect this liability protection. An LLC taxed as an S Corp provides identical liability shielding compared to an LLC with default (pass-through) taxation. The tax election is purely about how income is taxed on your personal return—it doesn’t change the legal entity structure or protection level.

Piercing the Corporate Veil

Courts may “pierce the corporate veil” and hold you personally liable if you treat the LLC like a personal extension rather than a separate business. This is rare but possible if you commingle personal and business funds, fail to maintain proper records, or use the entity solely to avoid legitimate obligations. Both LLCs and S Corps face the same piercing-the-veil risks—the tax election doesn’t strengthen or weaken this protection.

Insurance is equally critical. Maintain adequate landlord insurance for your Myrtle Beach property. The LLC structure is the first line of defense, but insurance is the second. An umbrella policy (typically $1-2 million) complements your entity structure by covering claims that exceed your standard landlord policy limits.

Compliance Requirements and Filing Deadlines

For 2026, the compliance burden differs significantly between the two structures. An LLC taxed with default pass-through status requires you to file an annual Schedule C with your personal tax return and pay self-employment taxes on Form SE. South Carolina requires annual LLC renewal filings (typically $25-$50 annually) to maintain active status.

S Corp Compliance Obligations in 2026

• Establish a payroll system to pay yourself W-2 wages quarterly, even if it’s a small amount.
• File Form 941 quarterly employment tax returns and deposit payroll taxes to the IRS.
• Issue yourself a W-2 by January 31, 2027, showing your 2026 wages and withholding.
• File Form 1120-S annually, showing S Corp income and distributions to shareholders.
• Maintain detailed documentation justifying your reasonable salary amount.
• Keep separate bank accounts and records distinguishing salary from distributions.

The S Corp compliance burden typically costs $1,500-$3,000 annually in accounting fees. Professional help is nearly essential because the IRS expects S Corp owners to maintain proper documentation. If audited, you need evidence that your salary determination was reasonable—industry comparisons, time logs, or expert appraisals are typical supporting documents.

2026 Depreciation Strategies for Real Estate

One of the 2026 tax law changes most beneficial to real estate investors is the permanent reinstatement of 100% bonus depreciation under the One Big Beautiful Bill Act (OBBBA). This rule was originally set to phase out starting in 2023, but Congress permanently extended it through 2026 and beyond. For Myrtle Beach rental properties, this means you can immediately deduct the full cost of most property improvements.

Cost Segregation Strategy

A cost segregation study can dramatically accelerate depreciation by reclassifying portions of your Myrtle Beach rental property. Standard residential rental property depreciates over 27.5 years. But if you pay for a cost segregation study ($2,000-$5,000), engineers reclassify components like appliances, flooring, fixtures, and certain improvements into shorter depreciation schedules (5, 7, or 15 years).

For a $300,000 property, a cost segregation study might identify $50,000-$80,000 of components eligible for accelerated depreciation. Combined with 100% bonus depreciation, you could deduct these amounts immediately in 2026, potentially creating a large loss that offsets other income. Whether you use an LLC or S Corp, the depreciation benefit applies equally.

Depreciation Method	Annual Deduction	Depreciation Period
Standard residential (building only)	$10,909 (on $300K)	27.5 years
Cost segregation (5-year components)	$12,000-$16,000	5 years
100% bonus depreciation (first year)	Full cost of eligible assets	Year 1 only

 

Uncle Kam in Action: Myrtle Beach Real Estate Investor Saves $8,400 Annually with S Corp Election

Client Snapshot: Sarah is a 45-year-old real estate investor who purchased two oceanfront condominiums in Myrtle Beach in 2023. She’s highly involved in her properties—managing tenant communications, coordinating maintenance, and handling seasonal rental marketing. Combined, her properties generate $125,000 in annual rental income after expenses.

Financial Profile: Sarah’s properties are held in an LLC taxed as a sole proprietorship. She also earns $80,000 in W-2 income from her job as a property management consultant. Her combined household income places her in the 24% federal tax bracket. She’s been paying full self-employment taxes on her rental income since 2023.

The Challenge: In early 2026, Sarah reviewed her 2025 tax return and realized she paid $19,125 in self-employment taxes on her $125,000 rental income (15.3% × $125,000). She questioned whether this was necessary, especially given her significant involvement in managing the properties. Her W-2 job already provides Social Security and Medicare coverage, meaning additional SE tax on her rental income creates double coverage.

The Uncle Kam Solution: We analyzed Sarah’s situation and recommended electing S Corp taxation for her LLC, effective for 2026. Based on her time investment and property management responsibilities, we determined her “reasonable salary” should be $45,000 annually (about 36% of her rental income). This reflects what a professional property manager would charge for similar work on two oceanfront properties with seasonal rental operations.

Sarah now pays herself a $45,000 W-2 salary quarterly, with full payroll tax withholding. The remaining $80,000 is distributed to her as owner income. Here’s the 2026 impact:

• W-2 Salary: $45,000 (subject to 15.3% payroll tax = $6,885)
• Distributions: $80,000 (NO self-employment tax)
• Total SE Tax with S Corp: $6,885
• Previous SE Tax (sole proprietorship): $19,125
• Annual Savings: $12,240

Additional professional accounting fees for S Corp compliance total $2,400 annually. After accounting expenses, Sarah’s net 2026 savings is $9,840. This is just one example of how our MERNA™ method for strategic tax planning has helped clients achieve significant after-tax improvements. Over a 5-year period, Sarah’s total tax savings exceed $40,000 while maintaining full liability protection for her oceanfront properties.

Next Steps

• Calculate your 2026 projected rental income and determine your involvement level (passive vs. active) to assess self-employment tax exposure.
• Analyze whether you meet the reasonable salary threshold for S Corp election by comparing your time investment to industry benchmarks.
• Obtain quotes from accountants experienced in S Corp compliance to understand the true cost-benefit of the election for your specific situation.
• Review your current entity structure and tax elections to ensure alignment with 2026 law changes, especially the permanent bonus depreciation rule.
• Schedule a consultation with a tax strategist to model your specific scenario and quantify potential savings before April 15, 2026.

Frequently Asked Questions

Can I change from LLC to S Corp election mid-year in 2026?

Yes, but timing matters. To be effective for the 2026 tax year, S Corp elections (Form 2553) must generally be filed by March 15, 2026, or within 2 months and 15 days of forming the LLC. If you miss this deadline, you can elect “late” S Corp status, but it becomes effective for 2027. Plan your election decision by late February 2026 to maximize 2026 benefits.

What happens if the IRS audits my reasonable salary determination?

If audited, the IRS will examine whether your W-2 salary is reasonable for the services provided. To defend your position, maintain documentation including: time logs showing hours spent managing the property, market comparisons showing what professional property managers charge, complexity analysis of your properties, and property management industry standards. The IRS generally allows 8-12% of rental revenue as reasonable property management compensation. If they determine your salary is too low, they’ll reclassify distributions as wages and assess back payroll taxes plus penalties.

Is rental income from a Myrtle Beach vacation rental subject to self-employment tax?

If your property is a short-term vacation rental (daily/weekly rentals) and you provide substantial services (cleaning, linens, turnover), this constitutes active business income subject to self-employment tax. If you own a long-term residential rental and hire a property manager, it may be passive income exempt from SE tax. The IRS considers frequency of turnover, extent of services provided, and your daily involvement. Vacation rentals almost always trigger SE tax exposure, making S Corp election more attractive.

Does South Carolina allow pass-through entity (PTE) elections for additional tax savings?

Yes. South Carolina allows eligible pass-through entities (including S Corps taxed as entities) to elect to pay entity-level taxes. This election allows you to deduct state taxes paid at the entity level, potentially capturing additional deductions under the $40,000 SALT cap that expires in 2030. Whether a PTE election complements your S Corp decision depends on your total SALT exposure and multistate presence. This strategy particularly benefits high-income real estate investors.

How does the 2026 qualified business income (QBI) deduction apply to S Corp rental income?

The 20% QBI deduction (Section 199A) applies to your S Corp distributions. However, W-2 wages you pay yourself reduce your QBI deduction. This creates a nuance: while S Corp election saves self-employment taxes, it slightly reduces your QBI deduction benefit. The overall savings still favor S Corp election for most rental property owners earning over $100,000 annually. An accountant must calculate both the SE tax savings and QBI reduction to determine net benefit for your situation.

What if I own multiple Myrtle Beach properties in separate LLCs?

You can elect S Corp status for each LLC separately, or consolidate multiple properties into one LLC and make a single S Corp election. Consolidation simplifies compliance (one payroll system, one Form 1120-S) but comingles liabilities. Most real estate investors maintain separate LLCs for liability isolation. S Corp elections can be made on a per-LLC basis or consolidated based on your preference and complexity tolerance.

Can I use the Section 179 bonus depreciation rule instead of cost segregation for 2026?

Section 179 and bonus depreciation complement each other. Section 179 has a $1,160,000 annual cap and cannot generate losses. Bonus depreciation has no cap and CAN generate net operating losses. For real estate property improvements, bonus depreciation (100% for 2026) is typically superior. Cost segregation accelerates bonus depreciation by identifying components eligible for shorter depreciation schedules. Together, these tools maximize your 2026 deductions whether you use an LLC or S Corp structure.

This information is current as of 1/23/2026. Tax laws change frequently. Verify updates with the IRS or consult a tax professional if reading this later.

Related Resources

• Comprehensive Entity Structuring Services for Real Estate Investors
• Real Estate Investor Tax Planning and Optimization
• 2026 Tax Strategy and Proactive Planning
• See How Our Clients Achieve Tax Savings

Last updated: January, 2026