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Updated almost 5 years ago, 12/26/2019
What business entity would a house flipper choose
When a house flipped is forming a business and have employees and a team, what would all this be under. An llc? Or another entity? Who would they include in their team?
@Owen Thornton
Make sure you get proper legal advice but commonly an S-Corp.
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#2 Land & New Construction Contributor
- Developer
- Charlottesville, VA
Originally posted by @Owen Thornton:
When a house flipped is forming a business and have employees and a team, what would all this be under. An llc? Or another entity? Who would they include in their team?
This is a question for your accountant, tax attorney and asset protection attorney. Every situation and State are different so what's best for one person may not be best for you.
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I would start with an LLC
An S corp can be a good option down the road- but starting with one would likely cost more than save.
An S corp is an election to an existing LLC so you can add that on when it makes sense.
"It depends"...………………………………………………………..
Most start as an LLC, then elect to be taxed as an S-Corp.
If you go this route on your own with internet research you are assured to get something wrong so pay for tax advice. To my clients this is a 15-30 min phone call.
Originally posted by @Owen Thornton:
When a house flipped is forming a business and have employees and a team, what would all this be under. An llc? Or another entity? Who would they include in their team?
As is typical, you ask a tax or legal question and get answers from both sides of the fence leaving you with the very same question again.
Where you are located and the value of the property or business generated is of vital importance.
As an example, here in CA, the decision whether to form an S-Corporation or an LLC is often guided by the expected impact the state's tax scheme will have on the business. Under California law, both S-Corporations and LLC's are required to pay an annual minimum franchise tax of $800. LLC's, however, are also subject to an additional tax burden known as the "gross receipts tax".
The gross receipts tax requires LLC's to pay an additional fee, in addition to the minimum franchise tax, calculated based on the company's gross revenues. An LLC's gross receipts tax is calculated based on the following scale:
In California, S Corporations are taxed at a rate of 1.5% tax of net income earned, whereas LLC's are taxed based on gross receipts pursuant to the above scale. This means that depending on the amount of gross receipts and profit a business generates, the company will be impacted differently from a tax standpoint by operating as an S-Corporation as opposed to an LLC.
So to ask this tax question here is not your best avenue, rather, go direct to YOUR tax professional and ask them what is best for your situation, your specific scenario or scenarios and go with what they say, not us.
Personally speaking, on my buy and holds out of state, I used LLC's and for all of my flips and development projects (except for one), I use/used an S Corp. That one LLC I did use I got hit with a $6k gross receipts tax which was unexpected and I will not be doing that again. But this is just my situation which has little or nothing to do with yours so keep that in mind.