Accounting for Landlord/flipper

[Craig Smith]

I am starting out from scratch after my divorce and am interested in setting up the right corporate entity and accounting for all of my expenses appropriately.  I expect to use the income from flips to grow my landlord portfolio but I realize I am about to generate taxes at a new and frightening pace and want to make sure I minimize the liability as much as legally possible by being set up correctly and using the right accounting software that will allow me to track multiple flips at the same time and account for rental income.

[David M.]

@Craig Smith

Well, whether you do it under your name or a LLC, generally all the deductions are the same... for liability, your rentals should be fine with insurance. Your flips you'll want separately in LLC

Tax efficiency is a little different. Flipping profits are considered active income as you are selling inventory, not investment, properties and you are classified as a dealer. So, think of it as ordinary, wage income where you have to pay self employment taxes as well. If you are seriously making decent money flipping, you would consider electing your LLC to be taxed as a S Corp which will help you save the SE taxes over the "reasonable" salary you'd have to pay yourself. I've seen arguments that make lots of sense to use a C Corp for flipping since the corporate tax rate is so low right now. In this case, if you leave the profits in the C Corp, there is no double taxation and it's potentially taxed at a lower rate than your ordinary income.

Obviously, as you progress through that para it becomes more complicated and costly. Talk with a professional to find out what reallly works for you

Oh, and dont forget that LLC are pass through entities so the funds hit your perosnal return. There is no such thing as leaving your profits in the company. Also, since tea talks are passive income they get probably the best tax treatment so don't try to make a wage out it unless you are doing a