I’m not an accountant, nor do I pretend to be an expert when it comes to the IRS, but…
if you do an LLC or a S-corp, and if you do enough of those deals, you will personally be labeled a dealer, which is not a good thing. If youre doing flips, from the IRS point of view, all of the income from the LLC & the S-corp pass through to you personally. Thus you could very well end up a dealer.
On the other hand, if you set up a C-corp, then you can specify that that will be your dealer corp & do all of your flips in it. This will keep you from personally being labeled a dealer.
So my advice, which came mostly from this board & Bronchick’s site, would be to use a C-corp for flips & LLC or S-Corp for rentals that you will keep longer than one year.
I’m currently engaged in my first rehab/flip project. Some books that I have read indicate that you should conduct business via a corporation. But what type of coporation – C-Corp, S-Corp, or LLC? Which structure protects my profits the best? Am I protected against IRS dealer status via a corporate structure? Any advice would help.
All three limit your personal liability to the extent of your capital contribution. However, the profits of a C corp are taxed separately and any dividends paid out are not deductible from the corporation’s standpoint but taxable from the individual standpoint. My advise is and S-Corp or LLC. The LLC is structured similar to a partnership. The best advice is to consult an attorney if you want to create an LLC. Most CPA’s, me being one of them, can help you to create an S or C corp. I hope this helps.