2019-2020 Taxes on Wholesaling

[Jonathan Newsome]

I started wholesaling this year under an LLC. I've been setting aside a percentage of my wholesale checks specifically for tax purposes. I'm also a w-2 earner, being employed by the US Military, which makes me a part-time wholesaler (not that it matters in the governments eyes)... Here's the break down of what I'm looking at:

To date My LLC has only generated $39,400 in revenue. I realize it's not much - haven't done more than a handful of deals...

Now, if I've done JV deals and paid out monies from the revenue that was generated (received by check in the LLC name), would I be responsible for taxes on the TOTAL amount generated or what was kept AFTER the payout? Out of that $39.4k - after the JV partners got paid, my LLC has actually made only $29,200 in total revenue. This was MY actual amount.

Going to talk about the w-2 wages now, as I don't mind talking sharing that info - military pay is public information any way. Total predicted wages for the 2019 year are $46,000. Total expected taxes withheld YTD are approx $2,200. Since profits made from wholesaling are counted towards ordinary income- would I be adding the $46k from my w-2 to the $39.4k (before JV payout) OR the $29.2k (after JV payout). Please understand that I'm aware there's more to it such as taking deductions like home office expenses, marketing, education, business mileage/trips, amortization, etc...

Also, when would it be wise to restructure as an S-corp, taking a w-2 salary from the corp?

[Ashish Acharya]

Originally posted by @Jonathan Newsome:

I started wholesaling this year under an LLC. I've been setting aside a percentage of my wholesale checks specifically for tax purposes. I'm also a w-2 earner, being employed by the US Military, which makes me a part-time wholesaler (not that it matters in the governments eyes)... Here's the break down of what I'm looking at:

To date My LLC has only generated $39,400 in revenue. I realize it's not much - haven't done more than a handful of deals...

Now, if I've done JV deals and paid out monies from the revenue that was generated (received by check in the LLC name), would I be responsible for taxes on the TOTAL amount generated or what was kept AFTER the payout? Out of that $39.4k - after the JV partners got paid, my LLC has actually made only $29,200 in total revenue. This was MY actual amount.

Going to talk about the w-2 wages now, as I don't mind talking sharing that info - military pay is public information any way. Total predicted wages for the 2019 year are $46,000. Total expected taxes withheld YTD are approx $2,200. Since profits made from wholesaling are counted towards ordinary income- would I be adding the $46k from my w-2 to the $39.4k (before JV payout) OR the $29.2k (after JV payout). Please understand that I'm aware there's more to it such as taking deductions like home office expenses, marketing, education, business mileage/trips, amortization, etc...

Also, when would it be wise to restructure as an S-corp, taking a w-2 salary from the corp?

This might be more complicated than you imagine. 

1)Is this LLC, SMLLC?. I am assuming it is. ( if not, the LLC has to file partnership Return and your net 29k will be reported)

2) Your SMLLC is assumed to have formed a partnership with the third party as you mentioned it was JV. JV usually is a partnership and has a 1065 reporting requirement. If it was not true JV, and you just paid a fee, then you would deduct the fee and would report net 29k

No matter what, you would report net 29k. 

On that 29k, you will have to make estimated payments to the IRS. I know you have already set aside the for taxes, but you actually have to remit the payment to IRS quarterly. Please google the estimated tax payment, you might not have to make a payment this year if this is the first year of wholesaling, you might qualify for a safe harbor. Your CPA will talk to you about this. 

Yes, you will add 29k, but you also owe self-employment taxes on top of ordinary taxes. Forming S-corp will help you avoid self-employment taxes, but at your level,  S-corp will not help. Your CPA will walk through the math.