Flipping Property in S-corp

[Seidy Lasker]

If someone is a "real estate dealer" and can't report profit as short term gains from developing or flipping property, then wouldn't the best option be to buy and sell through an S-corp since they're a business?

[Doug Smith]

That's probably a question that's better suited to your CPA that knows your personal situation, but I assume you're talking about non-qualified money, correct? We had the same issue with our real estate investment arm when we first started. In our case, since our business was flipping and construction, we had to report the income as ordinary income as opposed to capital gains. 

[Joseph Palmiero]

A S-corp could be a good option in your situation depending on how much income you are generating from the sales. This would help you reduce self employment taxes. It does come with administrative costs such as filing a seperate S-corp return and setting up payroll. You have to do a cost benefit analysis on how much you save in SE tax vs. the additional administrative costs. Keep your buy and holds in a separate LLC with its own bank account and set of books.

[Basit Siddiqi]

If the business is generating ordinary income that is subject to self-employment taxes, there may be some benefits of setting up an S-Corp.

[Michael Plaks]

@Seidy Lasker

When you're flipping/developing, you deal with two taxes: income tax and Soc Security/Medicare tax aka self-employment tax. Your income tax component (the bigger of the two, usually) will not change when you operate via an S-corp. Your self-employment tax component may go down. And it may not.

Whether it goes down and by how much is case-by-case and depends on your business profits and your overall tax situation. And if it does go down, it may or may not be worth the additional complexity and hassles mentioned by @Joseph Palmiero - such as a corporate tax return and payroll which cost money, too.

In the worst case, an S-corp can even cost you instead of saving you money. Don't do it just because there is a common belief among investors that it's a must-do. Have a competent accountant assess your situation first.