As far as the taxes paid in wholesaling, do you just pay a straight tax on the money that is gained threw fee paid to you by the buyer?
i think he means - “gained”…instead of “gaided”
best to talk to a cpa familiar with real estate - make sure you explain it well to them.
The answer is YES if you are asking about federal income taxes. Your wholesaling profit is taxed as ordinary self-employment income. Your marginal tax rate plus self-employment income tax rate both apply.
I have been looking into this as well and it seems that an LLC. will provide you with some tax benefits. As long as it is not a single member LLC. the IRS views it the same as an S corp. The advantage, from what I can tell, is that you get the tax benefits of an S corp. without all the paperwork and flamming hoops to jump through. You also get solid liability protection.
Both an S corp. and an LLC. (at least two members) are seen as “pass through” entities. This means that there is no “double taxation” like there is with a C corp. and you get taxed at a lower rate than if you were taxed as an individual. For single member LLC.'s you do not get any tax benefit but you do still recieve liability protection. They are just not recognized by the IRS.
I am in no way an expert, this is just some of the info. I have gotten through reseach. There are some good articles both on this site and others. Check them out. Hope this helps.
the IRS views it the same as an S corp
uhm…no. almost. maybe.
A single member LLC is considered a disregarded entity (1040 Sch C business) by the IRS unless you choose to tax it as a Corp or S-corp.
A multi-member LLC is taxed as a partnership unless you elect to tax it as a C-corp or S-corp.
However, if you choose to tax the LLC as a C- or S-corp, you do receive all the benefits thereof; the LLC IS a corporation to the IRS.
Income earned by a pass-thru entity maintains its character when it passes to the individuals for taxation. ie: passive (rental) income remains passive (No SE) and ordinary (flip) income remains ordinary, (subject to marginal tax + SE.)
Isn’t that what I said? Thanks for the clarification. Do you advise using an LLC for wholesaling if it has two members? Why or why not? Thanks again for the clarification.
I do not ever recommend holding investment property in your name.
A single member LLC defaults to a disregarded entity (sole proprietor). A multi-member LLC defaults to a partnership. The defaults happen unless the LLC elects to be treated for tax purposes as a corporation (c-corp is default). Once corporate election is made, another election must be made to convert to S-corp.
Both an S corp. and an LLC. (at least two members) are seen as "pass through" entities. This means that there is no "double taxation" like there is with a C corp. and you get taxed at a lower rate than if you were taxed as an individual.
Yes, the S-corp and the non-corp LLC are pass through entities. This means that the entity does not pay any federal income taxes in its own right. Instead, all the entity income is “passed through” to the owner/member’s personal 1040 where it is taxed at the member’s individual tax rate. There is no “lower rate than if you were taxed as an individual” for the pass through entity.
For the LLC treated as a C-corp, the LLC files a corporate tax return.
For single member LLC.'s you do not get any tax benefit but you do still recieve liability protection. They are just not recognized by the IRS.
The LLC is established under and governed by state law. The LLC, regardless of the number of members, is not recognized by the IRS in that the IRS has no tax structure designed for an LLC. Instead, the IRS requires the LLC to be treated for federal income tax purposes as a sole proprietor, as a partnership, or as a corporation and use the tax treatment appropriate to the election that is made.
For the LLC treated as a C-corp, the LLC files a corporate tax return
same for an LLC treated as S-corp.