Hello, does anyone think it’s an absolute MUST to set up an S-Corp in which to do my wholesaling? I’m just completing my first deal, and I hope to work up to one per month. I know most of the deductions are available even if I do my wholesaling as an individual.
Thanks,
both the deductions and taxes will be substantially the same.
the biggest difference is that you will not own the properties. this reduces your exposure to liability protection issues that drive most entity decisions.
Thanks, that is exactly what I figured. If I get to the point where I’m doing a deal a month or more, I may incorporate for the heck of it. But I don’t see any real advantage now…since I’m simply assigning the contract, never owning the property.
Thanks,
Actually, there is one other difference: Social security/self-employment taxes. Flip income is subject to this sort of tax & an S-corporation can help reduce that tax. But by reporting the first flip or two on Form 4797 instead of Schedule C, you might be able to avoid SST/SET in the beginning. Also, in very specific circumstances (e.g., you are in a high tax bracket personally), a C-Corporation may save taxes, even on the first flip.
There’s no problem waiting to do a few deals before setting up an entity…too many beginners engage in expensive entity overkill. Just weigh that approach against any tax (and to a lesser degree on flips, asset protection) benefits provided by an entity.
John Hyre
Thanks so much John. I thought your teleconference was one of the most useful on the REI site…I listened to it twice last week. You made the info as simple and possible, so I could actually understand it.
After I finish this first deal, I’ll evaluate whether an S-Corp would be the best thing to minimize taxes for future deals.
Thanks again,
Thanks for the kind words. We aim to please.
Hyre