Wholesale Tax Implications

[Dylan Dell]

Hello All,

Just a quick question for the seasoned wholesalers out there. I'm wondering what the tax implications are specifically for wholesaling and which forms are utilized. Obv- my best bet is to touch base with an accountant but I was just wondering what everyone else's experience has been thus far. Thanks in advance.

[J Scott]

Originally posted by Matt James:

Is 15% tax earned income per property you wholesale, or is it done for the total net profit you make on all your wholesale deals?

The way taxes work (in very simplified terms) is as follows:

1. You add up all your income (from all sources)

2. You subtract all your deductible costs/expenses

3. You pay tax on the total amount that is left after you do 1 and 2

Now, the tax you pay is a progressive tax, which means that as you earn more, you're taxed more (the first dollar you earn is taxed less than the hundred-thousandth dollar you earn).

Specifically, for 2011, the first $17,000 you earn is taxed at 10%. Anything between $17,001 and $69,000 is taxed at 15%. Anything between $69,001 and 139,350 is taxed at 25%. And it continues upwards, with higher dollar figures paying higher percentage of taxes.

So, let's say you wholesale 10 houses in 2011, each generating $10,000 in profit, for a total profit of $100,000. And let's say that you have $15,000 in deductible expenses (car mileage, office supplies, phone charges, etc).

Therefore, your net income is $85,000 ($100,000 minus $15,000).

Your taxes on $85,000 would be:

- 10% of the first $17,000
- 15% of $17,001 - $69,000
- 25% of $69,001 - $85,000

That equals:

$1700 + $7800 + $4000 = $13,500

So, you'd be paying about $13,500 on income of $85,000, or about 15.8% in this example.

Of course, it's going to be more complicated than this in the real world, but that's the gist of it...