Tips on Dodging Uncle Sam

[Tyler Frost]

I just recently bought my first flip house. All in after closing cost I'm at $75,000. I'll have $20,000 in rehab and the ARV is about $130,000. Based on expressed interest I don't think I'll have any problems getting 130. After closing costs, realtor fees and staging I'm estimating my profit to be 25-30k. My question is how much am I looking at paying in taxes on my first flip and what are some tips to get that tax bill lower? Alabama resident of that is relevant to anyone. Thanks in advance.

[Robert T.]

Tyler,

First, congratulations on your first flip.  That is great and your numbers look awesome.  I wish we could still buy for that price in CA!

As for your taxes, I'm not sure you can do much now to reduce your taxes unless you want to hold it for a year.  I'm not a CPA, so consulting a CPA would be your best solution.  However, flip profits are typically considered earned income (as though you worked for a employer) and you will be taxed at your normal tax bracket on that income, as well as for self employment taxes (about 14%) and are filed on IRS Schedule C .  After you have completed several deals, you can look at a S-Corps which may help you reduce your taxes, by breaking your income down into categories other than earned income.

Using the more traditional approach to tax reduction, you might contribute to an IRA or another type of retirement account depending upon your adjusted gross income for the tax year.

Still, great job on getting your first flip.