Author Topic: S-Corp or Pass Through LLC for Flip?  (Read 1424 times)

flashpacker

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S-Corp or Pass Through LLC for Flip?
« on: January 09, 2015, 10:28:00 AM »
For those of you who do flips as an LLC, do you do these as an S-Corp LLC or pass through LLC? 

I am doing an out of state flip and a partner is managing all aspects of the project so it is reasonable that if I chose S-Corp status, I could pay myself a nominal salary and the rest as a dividend, thereby not having to pay self-employment tax on the the bulk of the profits.  The self-employment tax is a profits killer in comparison to other investment options. On the other hand, I'm unsure about how much an S-Corp would increase accounting costs and hassle. 

I'm interested in the choices others have made.  If this project goes well, I plan to do 2-3 flips a year out of state.

maki

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Re: S-Corp or Pass Through LLC for Flip?
« Reply #1 on: January 09, 2015, 12:59:09 PM »
I have an S-CORP, and it owns my LLCs and LLPs. All profits flow to my S-CORP. LLCs are for asset protection.

The LLCs/LLPs are set up in the state I am doing the business in, but the S-CORP is set up where I live.

flashpacker

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Re: S-Corp or Pass Through LLC for Flip?
« Reply #2 on: January 09, 2015, 09:41:56 PM »
Maki - What does that look like when you do your taxes? What returns do you end up filing?

Also, how do you pay yourself? Just as a dividend?

If you don't mind me asking, what are your annual accountancy fees for that type of arrangement?

maki

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Re: S-Corp or Pass Through LLC for Flip?
« Reply #3 on: January 13, 2015, 05:00:48 PM »
In an S-Corp, you pay yourself via a salary/dividend split. How you structure that is up to you/your CPA. Most risk-averse CPAs will suggest a 70% salary/30% dividend split, but I have spoken to other CPAs who have handled many IRS audits and say a 50/50 split is not unreasonable. YMMV.

A general rule of thumb is unless your business is making over $30,000/year (gross), it's probably not be worth it to set up your entity structure like how I said.

My annual accounting fees would be a hard metric to gauge anything by, as I have several companies and employee payroll and everything handled by one firm.

I would recommend speaking to several tax professionals/CPAs first, before settling on one. If you had a health problem, you'd speak to several specialists to hear their individual opinions, right? It sort of baffles me that others don't do the same regarding their taxes, especially considering it's often the largest expense we will have in our lives.

I hope this helps, but, as with everything, take it with a grain of salt. There is no substitute for doing your own due diligence! :D

flashpacker

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Re: S-Corp or Pass Through LLC for Flip?
« Reply #4 on: January 13, 2015, 08:09:29 PM »
Thanks Maki. That does help. Appreciate your insight.