Do You Pay Self Employment Taxes When Flipping?
houses? I know if it is active investment activity you will be taxed at your regular tax rate as opposed to LT cap gains rate, but can you get out of the SE taxes by using a Corp or LLC?
But suppose we setup an S-Corp, with 4 shareholders. Each made a cash investment to buy a property thru the S corp, then the property was sold for more. The profit generated by the S-corp should be taxable to the 4 shareholders at the regular 15% or 25% rate, however, there should be no SE tax or FICA since the shareholders are not employees earning a salary or wages, correct?
Correct; however, at least one of you must hold the Officer positions and collect a reasonable salary, which will be taxed at the SE rate of 15.3 percent--and, in most states, also state and federal unemployment tax (FUTA).
[addsig]
Makes sense, LOK. Maybe if one of our partners already makes over 100K at his day job his social security taxes will be maxed out and we would only have to pay the 3.3% for Medicare.
The employer (entity) gets to write off its portion (7.65 percent).
[addsig]
Quote:
On 2007-06-05 22:55, LeaseOptionKing wrote:
The employer (entity) gets to write off its portion (7.65 percent).
Businesses can always deduct their expenses...
Since the subject of the EMPLOYEE being able to get a refund was brought up, I was just clarifying that the Employer gets to write off their matching contribution of 7.65 percent for each ermployee. Some people may be unaware that FICA contributions are deductible business expenses.
[addsig]
But in this case, since the officer/employee is also a owner, the company can set his net compensation to account for the fact that he will get his FICA taxes back on his tax refund.