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[ Follow Ups ] [ Post Followup ] [ The Forum Board ] [ FAQ ] Re: LLC : Short Term Capital Gains Taxes, or Ordinary Income Posted by damien on August 16, 2003 at 12:07 AM In Reply to: LLC : Short Term Capital Gains Taxes, or Ordinary Income posted by Wayne on August 16, 2003 at 7:09 AM : I have a question about taxes, if anyone can shed some light from personal experience and know-how. : Scenario: I form a company, LLC or S-Corp, capitalize it, and use this as a vehicle for property investments and property sales (rentals and flips primarily). I purchase a distressed property (eg. foreclosure), fix it, flip it. My net profit from the sale is $10,000.00 (for easier math), and I sold the property 3 months after I acquired it. : On the surface, this is a short term capital gains transaction, and as such the profits will be taxed at income rate for each partner in the LLC, or shareholder of the S-Corp. This could be a fairly steep 35%, or $3500.00. This is if I do not roll this profit back in to purchase another property. Does it matter? : My question is this. Under a corporate facade, S-Corp or LLC, is this profit realized as a short term capital gains, or is it realized as ordinary income to the company? : If it is short term capital gains, them I'm done, and I owe $3500.00 on that $10,000.00 profit, no matter what. : However, if this is classified as ordinary income to the company, then I take that profit and use it towards the purchase of my next flip. Now this money was put towards expenses, and thus it is no longer profit. : I continue along this line, always rolling all profits back into purchasing more inventory for the business. The goal here is to realize very little operating profit by year's end, except for the amounts we wish to take out as owner's profits, which of course are then taxed at ordinary income rate for each owner. : So, my question is, as an LLC or S-Corp, are profits from a short term sale (<1 yr) considered short term capital gains, or are they considered ordinary income? Wayne, No, income from the flipped property would not be short term capital gains. A corporation does not follow the same tax rules as personal income taxes. However every person has a different reason for wanting a LLC versus a Corp. I personally prefer a C-Corp over the S-Corp or LLC. In regards to your statement, if you take the profit and flip this back into a property purchase its no longer profit. That’s not always true. When figuring taxable income you need to determine if you’re basing your taxes on Cash or Accrual basis. My advise to you would be spend a few dollars and seek the advise of a tax consultant who can inform you based on your personal needs. Good Luck Damien Follow Ups: Post a Followup: Name : E-Mail : Subject : Comments: : : I have a question about taxes, if anyone can shed some light from personal experience and know-how. : : Scenario: I form a company, LLC or S-Corp, capitalize it, and use this as a vehicle for property investments and property sales (rentals and flips primarily). I purchase a distressed property (eg. foreclosure), fix it, flip it. My net profit from the sale is $10,000.00 (for easier math), and I sold the property 3 months after I acquired it. : : On the surface, this is a short term capital gains transaction, and as such the profits will be taxed at income rate for each partner in the LLC, or shareholder of the S-Corp. This could be a fairly steep 35%, or $3500.00. This is if I do not roll this profit back in to purchase another property. Does it matter? : : My question is this. Under a corporate facade, S-Corp or LLC, is this profit realized as a short term capital gains, or is it realized as ordinary income to the company? : : If it is short term capital gains, them I'm done, and I owe $3500.00 on that $10,000.00 profit, no matter what. : : However, if this is classified as ordinary income to the company, then I take that profit and use it towards the purchase of my next flip. Now this money was put towards expenses, and thus it is no longer profit. : : I continue along this line, always rolling all profits back into purchasing more inventory for the business. The goal here is to realize very little operating profit by year's end, except for the amounts we wish to take out as owner's profits, which of course are then taxed at ordinary income rate for each owner. : : So, my question is, as an LLC or S-Corp, are profits from a short term sale (<1 yr) considered short term capital gains, or are they considered ordinary income? : Wayne, : No, income from the flipped property would not be short term capital gains. A corporation does not follow the same tax rules as personal income taxes. However every person has a different reason for wanting a LLC versus a Corp. I personally prefer a C-Corp over the S-Corp or LLC. : In regards to your statement, if you take the profit and flip this back into a property purchase its no longer profit. That’s not always true. When figuring taxable income you need to determine if you’re basing your taxes on Cash or Accrual basis. My advise to you would be spend a few dollars and seek the advise of a tax consultant who can inform you based on your personal needs. : Good Luck : Damien Optional Link URL: Link Title: Optional Image URL: [ Follow Ups ] [ Post Followup ] [ The Forum Board ] [ FAQ ] WWWAdmin 2.0a © 1997 Matt Wright and DBasics Software Company, All Rights Reserved

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