LLC vs. S-Corp vs. C-Corp in California

[Aimee Hill]

I'm super confused as to the pros and cons of each of these entities.  I don't have money of my own to invest with so I am starting out by Wholesaling.  I've taken a class and have been made aware of 3 options I can start out doing.  Being a Bird Dog, Assignment of Contracts, or doing a Double close.  I like the profit opportunities with the Double Close, but I believe I need an entity in order to do it.  Since I am just getting started and don't know anything about these entities, I called my accountant.  She told me she can't legally give me any advice on which to choose, but she said I really don't need an entity.  I didn't really explain that I thought it was necessary for the Double Close, but she pretty much told me that as a new investor I will not need any entities and it will just create tax problems for me.  She said that maybe once I become a Real Estate Professional, but not now.  Is she right? I know I can't get official, legal advice here, but I definitely need some guidance.

Thanks!

[Linda Weygant]

The basics, in a nutshell.

C-Corp - The entity pays taxes on all profits.  In order to take money from the corporation, the owner may take a dividend, which is then taxable again.  The main con of C-Corps is this double taxation.  The owners may also take money out in the form of Salary, which is also taxable as regular W-2 income.

S-Corp - With very few exceptions, an S-Corp pays no income taxes as an entity. All profits are taxed on the Shareholders' personal returns, whether they are withdrawn or not. The officers of an S-Corp MUST take a "reasonable" salary from the S-Corp (which is subject to Social Security and Medicare tax). Further Shareholder Distributions may also be withdrawn from the corporation, which are not subject to SS or MC tax. However, there are some complicated basis issues that can arise if an owner withdraws more than their equity in the organization. Only natural US citizens or Resident Aliens may own stock in an S-Corp. Any entity (such as a trust, another Corp, Retirement Account, etc) can own stock in a C-Corp or LLC (although there are some foreign entity exclusions that exist).

LLC - An LLC can choose to be taxed as an S-Corp or as a Partnership. If as a partnership, then all profits flow through to the owners and the taxes are paid at the personal level, whether withdrawn or not. There is no salary component to owner compensation. If the revenue is of a business nature (not a passive nature), all profits are subject to 15.3% Self Employment Taxes in addition to Income Taxes.