Tax implications of a single flip

[David Baker]

Hi all, I have read several posts on first flips and taxes but have yet to find the answer.  So here goes!  

My wife and are both employed and in a higher tax bracket.   So if I flip a house this year and profit $25k am I going to have to pay at my current tax rate plus self employment taxes or just my current rate (assuming it doesn't bump me up)?  Sorry for the run-on sentence.  

And a followup when does one have to start paying self employment taxes?

Thanks!

[Linda Weygant]

The Self Employment Tax is made up of Social Security and Medicare Tax.  This is the same tax you pay as an employee (that your employer matches) so you're barking up the right tree when you question how your high salary impacts the flipping income.

As @Natalie Kolodij rightly advises, flipping is almost always Self Employment Income.  So you would normally plan on paying the following:

6.2% employee's portion of Social Security plus matching employer's portion = 12.4%

1.45% employee's portion of Medicare plus matching employer's portion = 2.9% for a total of 15.3% Self Employment Tax.

However, the Social Security limit for 2017 is $127,200, so if you already make that much at your W-2 job, you will not pay that portion of the SE tax and will pay only the 2.9% Medicare portion on your earnings.

Plus income tax at whatever your new bracket is that includes the flipping income.

If you are close to that limit, but not quite over, then you'll pay the 12.4% of whatever portion is necessary until your total earned income between your W-2 and your flipping income reaches 127,200.