Flipping as Active Income - Tax issue/Question

[Jonathan C.]

Hi All,

I have read a lot of posts & books and even attended "Guru" seminars that all seems to make the same statement that a Flipper pays his/her profit as active income - in tax bracket of 30%(?) vs. 15% capital gain tax if one holds the property 1year+. 

I have not spoken to any CPA but my question is, IF all the the flips are done in an entity - say an S-Corp, and if I use the profit from my flip to purchase the next properties, there really isn't any profit at the end of the year because all the money gets invested into acquiring the next property(ies) until the day I stop flipping, is that correct? Or should I say is that acceptable by the IRS? 

The business of the company is buying, fixing and selling real estate, and capital is used to conduct business (buying & fixing), I am just growing my business, not really enjoying any income (except for the "fair market salary" for the S-Corp owner). 

Example, 500k put into a flip project, sold for 700k, profit 200k. Then immediately use 500k+200k(profit) to purchase 2x 350k properties for next flip, then sell and buy another couple higher priced properties. And then keep rolling year after year. 

Of course even if re-investing is acceptable, there will be a BIG tax bill at the end of the road, so now comes the second question, is it possible that at the end of the flips the company purchase commercial/multi unit and hold on or keep doing 1031 exchange. So there is really no active/profit income all along the way, just building wealth/equity, anybody knows what does Uncle Sam says about this?