I've seen a lot of excellent threads on the site about business formation and taxes. I was hesitant to post on them because most of the recommendations say, "it depends on the particular situation."
I am posting the following with the hopes that it fits other investors' goals and business plans.
Example - Investor is full time employee of a manufacturing company and earns salary plus bonus. She is married, filing jointly, and is in 33% tax bracket before any real estate income. Investor loves her "day job" and wants to remain employed there.
She will start flipping houses this year, and wants to minimize taxes, but also wants to reinvest all after-tax revenue from flipping. At first, all after-tax revenue will fund future flips. Then the plan would be to start using that cash for down payments on conventionally-financed, buy-and-hold properties residing in a separate, single-member business entity (form yet to be determined).
The goals of the business plan are to flip 4 to 10 properties per year, and eventually hold a combination of single- and multi-family properties that generate over $4,000 pre-tax income per month. The expected first year, pre-tax flipping income is $50-100k.
The exit strategy is to cash out some properties starting in 6 years for dependents' college tuition. The rest of the properties will be held and drawn down during retirement and/or passed to her kids in her estate. Along the way, some rentals will be bought and sold to maximize profitability of the rental portfolio. She hopes to scale the rental business and hire a property management company (1099) to manage all doors.
Investor is also a broker, and would like to reinvest any commissions, rather than take them as salary or dividend (unless this really screws up tax treatment somehow).
Questions:
1) As mentioned above, investor is interested in reinvesting in future flips and ultimately (in a couple years) buy-and-hold down payments. She doesn't need a "salary" from the flipping business, but is not opposed to taking some income as salary or distributions to reduce any unnecessary tax burden. What types of single-member business entities should be used for both the flipping and the rental businesses given these goals?
2) Investor and spouse have two vehicles - a pickup truck that ends up being used to haul construction material, and a small sedan. She would like to write off the pickup. How much of the truck can be written off? Does the truck need be titled to the flipping company to be written off?
3) What are the "write-offs" the investor should take to (legally) maximize beneficial tax treatment? E.g - Home office? Travel? Mileage? Office supplies? Accountant?
Many thanks.
