What Kind Of Taxes Are Due From Flipping Properties?
I was reading through an older law book, and it mentioned that in some cases, taxes are due on the profits for a flipped property. What are the tax rules of you flip a property in your own name vs. an LLC vs. a corporation?
IF you are flipping properties, your income is treated as ordinary income, and is taxed at whatever rates and conditions apply to the entity, be it a sole prop, an LLC, a partnership, as S Corp or a C corp. Depending on your job income level and type of entity, you may or may not have to pay self-employment taxes on your flipping gains (If you already paid SE taxes on at least $87,000 or so, you will only owe the Medicare component of the tax on your flipping profits). IF you are set up as an employee of your corporation, you will owe no additional SE or payroll taxes on money you don't pay yourself, but your corp will have to include the profits, less expenses, as taxable income. Just consider your property flipping business hte same as selling any other product and go from there.
Say I have an LLC and I "flipped" 2 houses in one tax-year at a $5,000, for a total of 10K. After deducting my expenses for all the work I did and my company fees and stuff, which came out to $3,000, I would owe tax on $7,000, correct? Not the whole $10,000???
Matty Kling
Quote:
On 2004-04-16 15:00, mattfish11 wrote:
Say I have an LLC and I "flipped" 2 houses in one tax-year at a $5,000, for a total of 10K. After deducting my expenses for all the work I did and my company fees and stuff, which came out to $3,000, I would owe tax on $7,000, correct?
Assuming all your expenses were legitimate, yes, you would owe tax on $7,000. Also, let's say you bought some tools for another $5,000 that you'll use on several projects. Check with your Accountant for how to depreciate that expense. Some equipment can be depreciated in the year of purchase up to a certain amount. Some items have to be depreciated over a period of time. Your accountant should be able to give you the best advice in this area.
For the tools, you can pretty much expense the whole amount in the year you buy it. I think the limitations is somewhere around $100,000, but the main restriction is tha tthe amount being expensed can not create a taxable loss or increase an existing loss. Heck, many business people are expensing Hummers without a problem, and the dealerships promote this fact to a potential buyer who is in that situation.
Check with your Tax Accountant. I do 1031 exchanges. I also incur losses over income approximately $55, 000 per year. Majority of loss is associated with doing the business (REI) mileage, education (books, tapes, cds). I have been full time since 1988. Since 1990 to 1997 I had been audited by IRS. Always REI business related. In 1988 when I received another audit letter from IRS, I sent them a letter of potential harassment, since the previous years audits did not have any additional tax consequenses. I do keep very detailed records. It also helps that my Tax Accountant is a prior IRS Auditor.