Self Employment Tax on a Flip

[Michael Seeker]

I'm wondering if/why I will have to pay SE tax and all the other extra taxes on my profits from flipping.

This would make sense to me if flipping were my job and I were self employed, but the majority of my income (and my hours spent working) come from my day job.

I know I can set up a S Corp and pay myself a "modest" salary, but I'm wondering if I could do so without the modest salary (since I already have a salary from the day job) and just take all of the profits as dividends/distributions.

Any thoughts on how best to approach this in order to minimize my tax requirement would be very appreciated!\

-Mike

[Steven Hamilton II]

Michael Siekerka,

Yes, you do have to pay the tax on it.

SE tax is self employment tax. It is composed of both the employee and employers halves of Social Security and Medicare tax. There amount of social security you pay will be capped between your first job and flipping at 106800. You will pay the medicare taxes on all of it.

Yes you could open an S Corp and pay yourself a salary, set up a solo 401k provide yourself with some other benefits as well.

If you are not earning more than 106800. You sure do need to pay yourself a salary. You cannot just take a distribution of everything. As much as it is nice to skip the system, we all should be contributing to Social Security. There are too many small business owners who do this and then wonder late in life after the business and everything else fails why they are getting little to no Social Security.

For your flipping do you do a lot of the work yourself? If not consider the S election and pay yourself 10-12 per hour for work you actually do or just give yourself 1200 per month or some flat amount as that. Figure your average hours times an hourly rate and there is your salary. Many business owners wait until the end of the year to pay themselves so they know how much the business made and their salary for it.

-Steven the Tax Guy

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