Whats best S corp or LLC and why

General Real Estate Investing
1

I am going to be wholesaling properties to investors. Came across a GOLDMINE!!! I will be getting properties from 55 to 60% of the ARV. At least 5-10 properties a month in good areas. Since i will be wholesaling, whats the best enity for me S-Corp C-Corp or LLC and why

2

While I’m not an attorney, this is my take on it from my research.

For flipping/wholesaling you want an S-corp. S-corps (like LLCs) are pass through entities which you want especially during your formative years as a new investor. While these are less flexible than LLCs they are ideal for wholesaling. They are very very similar to LLCs in many ways. The one biggest advantage is exemption of having to pay Social Security tax if you (the owner) gives yourself a reasonable salary. Since you’re flipping for cash, a salary is an easy thing to do/get. If you were an LLC and flipping properties, you would be charged a 15% S.S. tax on your income.

Say you make $200,000 (would be nice wouldn’t it?) flipping properites as an LLC. You would then be paying $30,000 in social security taxes. Now say you were an S-corp and paid yourself $80,000. You would only pay $12,000 on your salary. The remaining $120,000 would be distributed without paying any SS taxes. Thus you can see where you are saving money.

Again, I am not an attorney by any means. This is my honest understanding of it. If I’m missing any info I’m sure someone would chime in.

Everyday is a learning day! Good luck!

3

I, too, am not an attorney. I have several entities in which I work. From one for private lending, a few for buy/hold of properties and another for Wholesaling/Flipping.

I attended a presentation about a year ago at which Donna Fox, an attorney, spoke. She gave a very informative and detailed presentation about utilizing multiple entities to keep the tax advantages and liablity positives off all forms while all but eliminating the negatives of each entity.

You can get the audio to that presentation, I believe called PREMES, at this location: http://www.wcrt.org/?Link=education

The ideas made complete sense, and I think it is a worthy item to have.

Hope that helps!

4

Ok, here’s a question…

I’ve got an LLC, being taxed as an S-corp.

Do I have to take a salary?

I know that I can not take a distribution if I don’t take a salary, but I don’t want the distribution this year, either.

The reason I’m asking is that I’ve got a loan I’m paying off, and want every penny to go to paying off that loan. I am, however, reimbursing myself for business expenses.

So in essence, I am not taking a salary as an employee, but I am being reimbursed as though I am…

Any thoughts on this one?

-Slip

5

Hey Slippery

How did you do the election for the LLC to be taxed as an S-Corp???

I’ve been looking ito the exact same thing, in fact I posted a question to this lforum about it earlier.

The 8832 form allows you to elect to be taxed as a C-Corp but I could find no info as to how to
select S-Corp status.

If possible, could you provide the details (forms required, etc) on making the S-Corp selection for the LLC.

jmd_forest

6

OK, Form 8832 is the entity classification election.

You have to fill that out (the call it the “check the box” form).

Basically all that is doing is telling the IRS that you are classifying your new company as a corporation for tax purposes.

Then, you have Form 2553.

That is the form you use to classify your new corporation as a S-corp.

Remember, this stuff is only for tax purposes. Your company is still and LLC by law, it is just being TAXED as a corporation, with an “S” election.

That’s all there is to it.

If you’ve got questions, ask an accountant about it, they are pretty knowledgeble in this simple stuff. For the more complicated stuff, seek a legal pro.

Hope that helps.

-Slip

7

Slippery,

I appreciate your advice on seeing an account/legal pro but as you mentioned, I’ll wait on that for the complicated issues. I understand the LLC will remain an LLC but be considered an S-Corp for tax purposes.

I’ve want this LLC to be S-Corp to flip properties through to avoid as much tax as possible. I hold my renatl properties in a seperate LLC as disregarded entities.

Thanks for the detailed info. So many postings on these lists are vague, high level responses. You were direct and to the point, providing exactly what I needed.

Thanks again.

JMD

8

Good deal.

Now, after you submit those two forms, you will get a notice from the IRS stating the acceptance of the S-corp election.

Also, you’ll want to talk to an accountant before you start drawing money from the company, as you’ll have to set yourself up as an employee and take out taxes from your paycheck. A bit more complecated than a straight LLC.

And you can only take a distribution if you take a paycheck.

It gets a bit complecated, so have a CPA set you up and get you going.

-Slip

9

Slippery,

Again good advice. Im my previous life I was a minority stickholder in a modestly successful S-Corp (120+ employees $16M/year gross) before selling out/retiring and beginning my real estate investment career. I set up aour initial accounting system for the S-Corp using Quickbooks and did much of the accounting (except for year end statements) myself during our 1st 5 years.

I plan to use the disregarded entity LLC to do much of the work on the properties and the LLC/S-Copr to take title, pay the LLC/disregarded entity to do the actual rehab work, and flip the title. This lmits the hours required for participation in the LLC/S-Corp and reduced the “reasonable salary” required to be taked by S-Corp officer.

JMD

10

Well, it sounds like you’ve got the accounting side of it figured out!

Good luck, and keep us all posted on how things go.

-Slip