Filing Tax for S-corporation

[Imran Shahzad]

Hi Everyone, 

Question,  we are 3 partners doing a flip in NY. Total Gut renovation.  Purchased property in 04/2024,  Hopefully in market by end of May 2025.   It's under S corporation, has a bank account, and funds are being used to construct.     1st project for us. will speak to my CPA this week.

But wanted to ask bigger pocket community how to go about re:  filing the taxes. 

Thank you for for you help and guidance. 

[Ashish Acharya]

@Imran Shahzad Since your flip is under an S-corporation, you'll need to file Form 1120-S for 2024, even if the project isn’t sold yet. Because flips are considered inventory (not capital assets), profits will be taxed as ordinary income rather than qualifying for long-term capital gains treatment.

For tax filing:

• Report expenses like construction costs, permits, and interest as part of your cost of goods sold (COGS)—these won’t be deductible until the property is sold.
• Since no revenue is expected in 2024, your S-corp may show a loss, but that loss won’t reduce personal taxable income until the sale occurs.
• Each partner will receive a Schedule K-1 every year, including 2024 and beyond, as long as the S-corp remains active.
• Unlike an LLC, S-corp shareholders do not pay self-employment tax on their share of profits. However, if actively working in the business, the IRS requires taking a reasonable salary (W-2) before taking distributions.

Since this is your first project, it's a good time to discuss with your CPA whether an S-corp is the best structure for future flips, or if a different entity type (like an LLC taxed as an S-corp) might be more beneficial.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.