alternative to ordinary income when flipping? - Posted by Kristine-CA

import · February 18, 2004, 1:53pm

Posted by jewood on February 23, 2004 at 24:34:27:

Diane, you wouldn’t happen to be the author in the RichDad advisors, would you? Just wondering.
Jewood

import · February 18, 2004, 1:53pm

Posted by Kristine-CA on February 18, 2004 at 14:53:19:

Greetings. I mostly wholesale properties to rehabbers and landlords. Most of the deals are double closes, using my buyer’s cash to fund my purchase. After looking at my tax situation for 2003, all that ordinary income does not look pretty. I have plenty of expenses to deduct, etc. But is there any way to change the nature of being a dealer when I don’t buy with my own cash. I’m still building cash reserves and believe I have one more year to go before I can close on most deals with my own cash.

Any suggestions? Thanks, Kristine

import · February 19, 2004, 2:14am

Which Title Company are you using? - Posted by Gary CA

Posted by Gary CA on February 19, 2004 at 03:14:13:

Could you tell us which title company you are using for your double closings?

import · February 18, 2004, 3:27pm

Re: alternative to ordinary income when flipping? - Posted by Tom Bazley, CPA

Posted by Tom Bazley, CPA on February 18, 2004 at 16:27:18:

The fact that you use someone else’s cash is irrelevant. Your gain is your sales price less your basis. And your gains are taxed at ordinary income rates.

How are you operating? Sole proprietor? If your income from these deals is high enough, you may consider forming an S-corp to do your flips. That could reduce the SE tax. Or, find a way to fund some tax free fringe benefits, i.e. fund a SEP.

But to answer your question, how you fund the deals is irrelevant.

import · February 24, 2004, 6:13pm

Re: Which Title Company are you using? - Posted by Housefinder

Posted by Housefinder on February 24, 2004 at 19:13:33:

Hi Gary,

Your best bet is to call the Title Companies operating in the area of Ca? that you live in and see who does double closings. It’s an education! Some act like you have the plague and others will welcome you with Open Arms! Ask them if they work with investors who do 3-4 closings a year. Don’t worry about wether or not you have a deal yet - build the relationship first! Good Luck!

Danielle

import · February 27, 2004, 3:36pm

QUESTION FOR TOM BAZLEY - Posted by RICH

Posted by RICH on February 27, 2004 at 16:36:15:

Hi Tom,
I plan to do alot of flipping this year, what entity should i use for my company, LLC or LP? I have read my post that suggest LLC what do you suggest?
please reply me direct to my email glowwykingdom@hotmail.com
Thank You

import · February 27, 2004, 3:30pm

Re: alternative to ordinary income when flipping? - Posted by Rich

Posted by Rich on February 27, 2004 at 16:30:46:

Hi Tom,
I am planning to do a lot of flipping this year, what entity is best LLC or LP since i am doing this by myself, i have read many post that recommend LLC, what do you sugest? please reply to glowwykingdom@hotmail.com
Thanks

import · February 18, 2004, 6:02pm

Re: alternative to ordinary income when flipping? - Posted by Kristine-CA

Posted by Kristine-CA on February 18, 2004 at 19:02:53:

Tom Bazley: thanks for your reply. Yes, I’m operating and a sole proprietor. I’d like to reduce that SE tax, that’s for sure.

In your opinion, at what point–income wise–does an S-corp make sense. Thanks, Kristine

import · February 19, 2004, 8:18pm

Re: alternative to ordinary income when flipping? - Posted by Diane (TX)

Posted by Diane (TX) on February 19, 2004 at 21:18:37:

Kristine -

There are professional fees, plus a hassle factor for dealing with payroll and corporate recordkeeping, plus in CA a 1.5% tax on S corp profits. Take that into account when you play with the numbers, and figure on paying out 40% to you as salary (under the theory that you should declare some salary - pigs get fat, hogs get slaughtered). I’d start considering an S corp around $40,000 in net income. Your threshhold may be lower.

import · February 25, 2004, 9:16am

Re: alternative to ordinary income when flipping? - Posted by Kristine-CA

Posted by Kristine-CA on February 25, 2004 at 10:16:56:

Diane: thanks for your message regarding S-corps. For some reason my email filter quarantined your message so I’m just reading it now. I think I’m at my threshold regarding s-corps as my net income last year from wholesale re-sales was over $40K.

I am hoping that there is a reasonable (price-wise) solution to payroll and corporate record keeping as that I is not what I think I should be spending too much time on. I have limited hours to work my deals and do marketing due to homeschooling kids. But looking at that 15% coming out of ordinary income from last year is a motivating factor.

Sincerely, Kristine