LLC vs. S Corp for Wholesaling?

Question

Hi All,

Many years ago when I first started rehabbing and wholesaling, my CPA told me that the S Corp. was the best option for my business entity. I went with his recommendation, but now it seems like everyone I see in the business is running as an LLC.

Just trying to get some feedback as to why the LLC vs. the S Corp.  Any and all information would be appreciated.

PS. I am in Maryland.  Thanks!

Brenda Allen · Answer

Hi David,

I can see why you were confused. We always just referred to our business entities as S Corps - but the correct way to refer to them is as corporations for which we elected subchapter S for tax purposes.

Sorry for the sloppy language and thanks for the input. I think a meeting with my CPA is in order. I would like to find out if I am still using the best entity for my business.

Thanks again

Brenda

Basit Siddiqi · Answer

S-Corps are best for businesses that generates ordinary income.Wholesaling generates ordinary income.

Joe Norman · Answer

LLCs are much easier to setup than S Corps, but offer most (or maybe all) of the same benefits which is why folks are using them. Especially investors who want a single entity per property.

David M. · Answer

@Brenda Allen

Good.  As long as you know the difference.  Most people don't and think of S Corp as their own entity.

Not to say you have a dishonest accountant, but it seems that many "push" for the S Corp to save you money when it basically makes them more money.  From a pure/immediate tax savings, its just that SE tax above your "reasonable salary" that its saving you.  Unless you are making a tremendous amount of ordinary income and had at least one partner, it doesn't really save you that much.  If anything, the maybe several grand is mostly chewed up by the additional filing requirements with its semi-corp-like nature.

Good luck.

David M. · Answer

@Brenda Allen

in some ways, i don't understand your question...  S Corps are just a tax status, they aren't legal entities.  One generally forms a LLC and then declares S Corp filing status with the IRS.

Part of the issue with the S Corp is its "corp-like" status which basically increases its overhead costs --- I think of it as just having to pay more money to your accountant for quarterly and annual filing costs.  Meanwhile, the only thing you are saving (in your case) is the self-employment tax above your "reasonable salary."  This works on your ordinary income generated by wholesaling and flipping.

Other uses include trying to get health insurance and retirement plans.

That's my quick 2 cents.  Good luck.

Russell Brazil · Answer

We will likely see wholesaling in Maryland either coming to an end or becoming highly restricted after the next legislative session. Perhaps not a great time due to that to jump into wholesaling in Maryland.

Brenda Allen · Answer

Thanks Joe.  I didn't realize that an LLC was easier to set up.  I have always created my corporate entities myself with the state of Maryland and I never found it to be too complicated.  If I am not mistaken, the cost is the same too.

Brenda Allen · Answer

Curious.... did you actually read my post? I have been rehabbing and wholesaling since 1998.  Just curious as to why everyone is using an LLC now.

Joe S. · Answer

Curious… Have you actually ever wholesaled a property?

By answering this question above we could give you more insight. If you’re simply thinking about becoming a Wholeseller, then I would not advise to set up any special procedures on hopes. I could say more, but whole selling is much harder than people think.

LLC vs. S Corp for Wholesaling?

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