Tax classification

[Christopher Williams]

Hi all. I'm new to real estate investing and from the Philadelphia area. I recently set up my business using legalzoom. The main function of the LLC will be to flip properties. While I do have a minority partner, I was unsure of the tax classification I should elect. I was told that an S-Corp would be best for my situation, but I wasn't given a clear explanation as to why. Can someone advise me on what's best or point me in the right direction. Additionally, what are the major differences from a pure real estate standpoint? Thank for reading. Chris Williams

[Logan Allec]

@Brandon Hall, sorry, misspoke, the scenario I described above assumes husband and wife each earning $50k in their day job (which is more realistic for lots of flippers here on BP)--not a single $100k+ income earner--and that both spouses are involved in the flipping business, either as a qualified joint venture in the non-S corp scenario and as 50/50 shareholders in the S corp scenario.  Of course if you went the sole prop route you could claim that one spouse was not involved in the business so the full 15.3% would be paid on less (because the flipper spouse would max out at the $118,500 after $68,500 of flipper income but if both split the business income then no one would max out at $118,500 and the full 15.3% would be paid on flipping income), and the S corp savings would not be as great, but that may not be integrous.

I agree, the S corp is also more administrative cost, but that of course depends on who you hire out to.  But with simple cases like this one there are providers who will do payroll for less than $250-$300 per quarter.