I am new here - Glad to be aboard, lots of good info.
My question is this:
I have my regular job - earning approx $103K/yr.
I want to form an entity to do flips/rehabs - basically active income. From what I understand of John Hyre’s article on Choosing an Entity, he suggests that an S-Corp is better for flips in most cases.
He mentioned that the S corp is advantageous for flips if you you don’t make more than the “Maximum earnings subject to SE tax” as defined by the IRS (I think it is $102K as of this year).
My question is what entity then will be best suited for me? A c-corp? an LLC (c corp taxation)? an LLC (sole proprieter taxation)? or an s-corp anyway. Many thanks.
I combed google with no luck.
It depends on your goals and the management costs of the entity for your state. Each has a different set of advantages and disadvantages. Review your situation with your tax professional. He knows your situation better than anyone on this board.
I understand the wisdom behind your reference to see an accountant. I was
hoping for some discussion on the topic - after all, with due respect, what good in a discussion board if the answers are “see an attorney/accountant”
Fees in Texas are about $300 for corp as well as llc formation. My initial goals
are to keep my day job and flip. I will use the prfofits from the flips to eventually purchase longterm rentals which I am told is best hold in an LLC (non c-corp).
I appreciate yours and everyone’s insight.
There are quite a few discussions in the archives about the benefits of different LLC’s, but just saying that you want to form an llc to do flips and rehabs is not very discussion generating, asking questions about tax liabilities for your plan is better way to go. But it’ll eventually boil down to only your tax professional and yourself determining the best way to go about it.
It is definitely good to do your research. This will help you communicate with your advisors, but as stated earlier the only ones that would have the answers to your specific situation is an accountant and a lawyer. I would find advisors that specialize in helping people do what you want to do. Call them and ask what their specialty is, don’t ask them if they can help you with your situation because almost all of them will say yes. I would find a local real estate group (I found some local groups through meetup.com) and ask other investors. Interview 3 or 4 and go with the one that you click with the best. I know this doesn’t answer your question but you are asking for very specific advise and the laws are different in every state… and while some advise could be good or sound good you may end up getting what you paid for. Good advisors are worth every penny.
LLC vs S-corp is a meaningless discussion. LLC is not a tax class.
You can easily have an LLC taxed as an S-corp (or C-corp, partnership or disregarded). Basically, you choose LLC then you choose how to tax it.
S-corps are not necessarily better for flips. Gurus push this strategy based on the ability to avoid SET if you can afford to pay yourself a reasonable salary. This level of cashflow is difficult to achieve in real life. Absent this, there is no appreciable benefit to S-corp, but it does come with some significant disadvantages.