All Forum Posts by: Rhett P.

Open an escrow at a title company and let them handle the transaction.  Negotiate with the buyer who pays for what...or split the costs 50/50.

Rhett I'm a CPA with 10 years of tax experience.  I'm very aware of the advantage with S Corp's regarding social security and medicare taxes :)  If you do decide to go the S Corp route (based on what you're saying probably makes sense) keep in mind that you need to pay yourself a reasonable salary so you'll need to file quarterly payroll reports and W2/W3 at year end.  The earnings you then pass through to your 1040 will not be subject to SS or Medicare so there is the nice advantage with S Corps.  

The more I think about it I don't even see this type of activity being subject to self-employment tax. If that's the case an S Corp makes zero sense to me. The tax implications between the LLC and the S Corp would be pretty much identical and with an S Corp you would have to pay yourself a salary, file payroll returns, W2's, etc.

What makes you think this type of activity would not be subject to SE tax? Keep in mind he's flipping locally AND all over the country. He also hasn't disclosed his roles in the flips. Curious as to how you came to this conclusion?

Rhett - I think you need to get on the phone with a real estate CPA prior to establishing any entity. If your motivation is tax breaks, you need to fully understand the tax breaks available to you per entity prior to discussing with a lawyer. At least that's the logical progression to save you time and money.

You need to discuss with attorneys that are located in the state(s) you will be doing business in. CPAs have much more flexibility and can practice virtually anywhere. MY recommendation on the CPA side will be to find a real estate savvy CPA, regardless of where you are located.

For instance, I'm located in DC and have several CA clients. I can tell you that it will be difficult for you to avoid CA's franchise tax on your out-of-state entities, which amounts to a minimum of $800 annually per entity. You can avoid this tax by substantiating the fact that you do not "do business in" CA, but CA has very liberal rules surrounding the definintion of "doing business in CA" so proper planning will be key.