S-Corp or LLC for flips?

[Ben C.]

Hello, What are all my flippers out there using as their entity for flips? S-Corp or an LLC? Can you list the pro and cons of each for this specific application (flipping)? I have heard S-Corp you can potentially save some $ through minimizing self employment tax through "distributions". However, from my understanding you need to carry workmans comp insurance and their is more paperwork etc vs llc. My accountant is strongly suggesting an LLC. Seems like most flippers in my area are registered as LLCs on their flipping properties. Looking forward to this discussion.

[Account Closed]

Let's establish some facts and terms first.

1.)  An S-Corp is not actually a separate business entity that is created.

2.)  Being an S-Corp means that you are already a business entity of some type and you file IRS Form 2553 with which you make an Election to be treated for tax purposes as a Subchapter S Corporation.

3.)  The primary feature of S Corporation status is that the income of the entity will drop through to the shareholders and not be taxed at the entity level, and it will not be treated as self-employment income.

4.) An LLC can be created, it can choose to be taxed as a corporation, then it can file Form 2553 to be treated as an S Corp for tax purposes, and it will refer to itself as either an LLC or an S Corp. But it is actually an LLC that has elected S Corp tax treatment.

5.)  A regular corporation, called a C Corporation can be created and Form 2553 can be filed, and the entity will be referred to as an S Corp.

6.) So, traditionally, "S Corp" means a C Corp that has elected Subchapter S tax treatment, and does not mean an LLC that has elected Subchapter S tax treatment.

7.)  Lately, however, the two terms have been used interchangeably, and this is causing confusion when it comes to asking question, and even more confusion when the questions are answered.

Sorry if I rambled a bit, but we need to be as specific as possible and we will get better exchange of information.

I hope this helps someone.

Michael Lantrip