Why do you use an S-Corp for flipping?

[Bienes Raices]

I believe I've seen people here mention that they use an S-Corp to flip. I asked my accountant and he said there was no tax advantage to this (vs. an LLC). So I was wondering what the rationale was for the S-Corp.

[Steven Hamilton II]

Bienes and everyone,

Read this slowly as it is often confusing. Most people have a hard time understanding this.

An LLC is what is called a disregarded entity. The IRS does not recognize it unless you ask them to by making an election to be an S-corp or C-corp or partnership(if more than one member).

A single member LLC may file as a sole proprietorship and pay both halves of Social Security(subject to income limit of 106,800) and both halves of Medicare totaling 12.4% in addition to paying regular income tax on the earnings.

If you elect to be taxed as an S-corp, you may pay yourself a salary from this business, and take in the rest of the income as "ordinary income(not subject to FICA like Self employment income is)" which means it has no "preferences(capital gain treatment".

Yes if you elect to file as an S-corp, you will have to file an 1120s before your personal 1040.

A single member LLC only files as a Schedule C on your 1040. If the LLC only has rental property than simple be included as Schedule E on your personal 1040.

An LLC can be an S-corp but an S-corp can't be an LLC.

It may be time to find a new accountant.

-Steven the Tax Guy

Your guide to IRS laws, rules and regulations.