LLC, Tax, & WA

[Davin T]

Hi everyone. this forum is very helpful, I've been reading and learning a lot.

I'm in the process of looking to buy my first flip all cash.

From my understanding, it's best to form an LLC with S-corp tax election to save on some self employment tax for flips.

Section 1:

This is going to be a single member LLC. My question is can I have the LLC that is a disregarded entity for the flips that is owned by the LLC with the S-corp tax election as the single member which is owned by me? All of the income is passed through to the S-corp that would distributed dividend and salary to me? The single member LLC (disregarded entity) would be registered in the state of WA in which I plan to invest in and the LLC with the s-corp will be registered in Delaware and will be the single member. And since the Delaware LLC is a member of the WA LLC, I do not need to register the Delaware LLC with WA state as a foreign entity, is this correct? Is this arrangement possible? Is it too complicated for tax purpose?

Also, since both are LLC. How would it be written as the buyer? For example if the LLC has a person as member or manager it would be written out as: ABC LLC, by John Doe, member
And since both are LLC, how would I be writing this offer as?

Section 2:

For tax purpose: Say for example and for simple math, at the beginning of 2014, I buy 4 properties at $70k each. After rehabbing, closing costs, etc, I sell all 4 properties and I got cash back from escrow for $150k each. All 4 properties would total me $600k. I would reinvest to buy more properties and rehabbing them and all of the properties are not for sale yet. By the year end of 2014, I only have about 50k of cash left in the LLC. So for the year 2014, am I being taxed at what I have left in cash of 50k net or I'm being taxed for the 4 properties sold?

Please help out, thank you very much.

[Steven Hamilton II]

Originally posted by Davin T:

Hi everyone. this forum is very helpful, I've been reading and learning a lot.

I'm in the process of looking to buy my first flip all cash.

From my understanding, it's best to form an LLC with S-corp tax election to save on some self employment tax for flips.

Section 1:

This is going to be a single member LLC. My question is can I have the LLC that is a disregarded entity for the flips that is owned by the LLC with the S-corp tax election as the single member which is owned by me? All of the income is passed through to the S-corp that would distributed dividend and salary to me? The single member LLC (disregarded entity) would be registered in the state of WA in which I plan to invest in and the LLC with the s-corp will be registered in Delaware and will be the single member. And since the Delaware LLC is a member of the WA LLC, I do not need to register the Delaware LLC with WA state as a foreign entity, is this correct? Is this arrangement possible? Is it too complicated for tax purpose?

Also, since both are LLC. How would it be written as the buyer? For example if the LLC has a person as member or manager it would be written out as: ABC LLC, by John Doe, member
And since both are LLC, how would I be writing this offer as?

Section 2:

For tax purpose: Say for example and for simple math, at the beginning of 2014, I buy 4 properties at $70k each. After rehabbing, closing costs, etc, I sell all 4 properties and I got cash back from escrow for $150k each. All 4 properties would total me $600k. I would reinvest to buy more properties and rehabbing them and all of the properties are not for sale yet. By the year end of 2014, I only have about 50k of cash left in the LLC. So for the year 2014, am I being taxed at what I have left in cash of 50k net or I'm being taxed for the 4 properties sold?

Please help out, thank you very much.

@Davin T ,

YCou only pay tax on the PROFIT. So if the corp buys for 50k rehab costs another 50k = 100k. Sells for 150k (after expenses). Then you profit is 50k per property times 4 properties = 200k of profit that is taxed. Now if you incur other expenses those will lower the taxable income. Some of this MUST be paid as salary subject to Social Security and Medicare withholding. 6.2% Social Security plus 1.45% Medicare tax would be withheld from your wages. An additional 6.2% Social Security plus 1.45% Medicare tax would be paid by the corporation to match what was withheld from your checks. You can also contribute to a solo 401k and the corporation can match contributions up to 25%.

An S-corp HAS to pay a reasonable salary for the work done.

You are probably wasting time with the Delaware LLC. I would talk to SEVERAL lawyers and do research yourself as well. If you are sued it would be in the state you are doing business (WA).

The multiple layers are a waste of time for tax purposes. You simple have the LLC even if it was Delaware it would register in WA if it is involved or managing a business in WA.(see where it becomes irrelevant?).

Without knowing your tax situation, you could be best off forming an S-corp, although for certain high earners it is not the best choice. I do NOT know your tax situation; however, with more detail could advise you more thoroughly.