All Forum Posts by: Jason Ballesteros

Also is there a good % to abide by when paying salary vs. dividends. The tax man I am sure is looking for excess dividends with low salaries. Thank You Again!!

The marginal tax rate for them is basically their income tax rate. This is calculated by their income bracket, correct. The dividends will be subject to their income rate with no FICA Tax, correct.

I understand what you are saying. I re read my post and it sounds a little confusing. I just need to find the information on the tax rate that is applicabl to the salary and dividends of the corporate officers.

Yes, I see now (light bulb). The only income that will be subject to the marginal tax rate(short term CG) would be the salaries of my parents as the corporate officers. The dividend will be subject to it as well based on their income level, correct? My brothers and I will just pay on our income individually. I have some more reading to do to understand the marginal tax rates and how it pertains to the rate of taxes you pay, based on your income. Is there not a chart located somewhere on a site (maybe irs.gov) that tells you your marginal tax rate? Thanks you are being very helpful J Scott.

Yes everything you said makes sense. My only question is about the capital gains again. Maybe I am getting some misinformation from some of the posts. I believe I read in another post that if you are considered a (dealer) than you are subject to short term capital gains taxes. Is that only if you are buying the properties as an individual?
Are we gaining those benefits by being a S-corp taxed at the marginal rate?
I just want to be sure that we are following tax guidelines while all the while keeping uncle sam out of our pockets the best we can. I know the S-corp is very beneficial. I think we have a pretty decent business plan in the makes and want that reassurance from other experts.
My brothers and I will be paid for the work performed as employees of the DBA. That said, we will just be paying our own income taxes individually correct? My parents, who are the only two officers of the corporation, can take a salary from profits and pay taxes at their marginal rate, correct? Any money left in the business can be paid to them as dividends at the end of the year, thus avoiding the self employment tax for them, correct?
This sounds like a very good way to avoid the capital gains tax that I thought we would be subject to, if I am correct in my understanding.
I would like to also keep money in the business as well for cash buying purposes down the road. If that money is left in the business at the end of each year is it subject to se tax. Or can my parents just reinvest their dividends back into the business for cash buying and rehabbing expenses.
Sorry for rambling on I just have so many questions and don't even know where to start. Thanks again.

Please bear with me as I am new to the investment and tax implications of flipping homes for profit in less than a years time. My father and I work together in a flooring contracting company. My father has the company under his Corporate name as a DBA. We are trying to understand the capital gains tax implications at the end sale because to start, we do not wish to hold the properties for a period of a year or longer. I understand that we will still have to pay the capital gains tax at a long term rate if we hold for longer than a year.
My question I guess is, Can we not pay ourselves throughout the job so that $$ goes to the basis? I assumed that by doing it this way we will not see as large of a profit on the end sale, hence the capital gains tax would not be as large. We will still be paying income taxes on our profits because they will be distributed to us throughout the job as a salary.
We are capable of doing most of the work to a home ourselves and I figured that would be to our advantage because of the reasoning behind taking a salary out of the project while it is going on. We still would like to keep some funds in the business to grow the business as well.
I have also been reading alot of posts that state the profits on the end sale can also be paid out as dividends to corporate officers or shareholders at the end of the year. Is this correct? By doing this do you avoid large capital gains hits because you are taking the profits out as income? Can employees(like myself and brothers) be paid dividends out of the profits as well. My brothers and I are employees of the DBA.
I have read quite a bit on 1031 exchanges as well and am still a little uncertain if it will fit into our business plan to start because of the inability to hold the properties for a year or more until we build a little more capital.
We just want to maximize profits. I do not feel that the IRS can take our profits as capital gains if we are paying ourselves salaries throughout the construction. We are doing the work and that should be considered our income for work performed.
Any help on this would be greatly appreciated. I think this idea is legitimate but some reassurance or discouragement would help me understand the correct path to take.

I am very excited to be here. Skylar, your story is the kind of thing that I like to read. It gets me motivated to work as hard as I can to have that kind of success story. Keep up the good work.

Welcome!! You will learn many things here, as I was like you and thought I knew more about the world of real estate than I really do. It is very easy to be an addict here, but you can't help but try to learn as much as you can from the great people here. Good Luck in your real estate ventures. .

Welcome to the site. You will find more information than you can imagine on this site. Ask as many questions as you can and there are many great minds here that can help you. Good Luck.