wholesaling and buying rentals with a partner using LLC or S-Corp

[Devin Wilkinson]

I am currently completing my first wholesale deal with my partner and we are ready to start operating under a real company. We plan to do wholesaling but also buy some rentals as we go and I don't know whether we should start an LLC or S-Corp. From my minimal understanding an LLC is best for buy and holds but for flipping/wholesaling I have heard an S-Corp could be beneficial. I do not know which is best since we are doing two different things. Or would it be best to wholesale under an S-Corp and buy under an LLC. If so can i still make them the same name. The company will be owned by myself and my partner, we are both college students so we do not have a W2 job (We will have a summers sales job 2019) so I want to figure out which will be most beneficial tax wise. We want something that we can grow with because we plan to do a lot more than a few deals a year. I know there are lots of variables and "it depends" when it comes to these things but any help would be greatly appreciated!

Thanks!

[Ashish Acharya]

Originally posted by @Devin Wilkinson:

Thanks for the help @Ashish Acharya. The LLC and lending problem is something I have been thinking about. I am curious to what the 40/50k benchmark entails that you mentioned. What happens when you surpass (or don't surpass) that amount? I am definitely aiming to surpass it though haha

One of the tax advantages of S-Corp is the avoidance from a self employment taxes . 

If you run your whole selling activity via S Corp, then the net income is not subject to self-employment tax. However you have to first pay yourself a reasonable salary to arrive at the net income. The reasonable salary will pay a payroll tax that is equivalent to self-employment tax. 

So if you make less than $50,000 and you pay yourself the entire $50,000, then you are basically paying the same amount self-employment tax via payroll tax and the S-Corp is not saving you any money as you don’t have no net income. 

However once you pass that threshold, then the net income after the salary escapes the self-employment tax. So if you make Hundred thousand dollars and pay yourself $50,000. The net income of $50,000 avoids the Self-employment tax off 15.3%.

If there was no S corporation, then the entire hundred thousand dollar would be subject to self-employment tax. So you would be paying 15.3% tax on the entire hundred thousand dollars. But with a S corporation after you pay yourself a salary, the $50,000 net income avoids the tax.