How to file for taxes as a wholesaler.

11 Replies

I just started wholesaling, I haven’t landed a deal yet. However, I do have a few offers I’m waiting to hear back on. In the mean time I want to know how does taxes work for wholesalers. If I make $20k from a deal how much of that should I be setting aside for taxes..

Currently do not have a CPA, actively trying to find one in the CT AREA.

The amount you'll pay in taxes will depend on your marginal income tax rate and how your business is structured. There's no canned answer for this, as it depends on your income as a whole and not just the income from your wholesaling business.

However, if you're set up as a sole proprietor (including an LLC who never made any kind of tax election with the IRS), you'll have a 15.3% self-employment tax on the profit from the sale - on top of the income tax you pay. So I'd recommend having a solid 25-30% of your profit set aside to pay taxes purely as a ballpark estimate, and make sure you're tracking all of your business expenses so that your profit reported is as accurately as possible. Working with a tax professional on your actual tax liability numbers will help you nail this down a lot better than my estimate here. Additionally, you'll likely want to make estimated tax payments in order to avoid potential failure-to-pay penalties on underwithholding for tax liability - this is something else a tax pro can help you with.

As far as finding a tax professional, check around with other local investors to see who they use. Another option, if you're open to it, is a remote preparer. There are lots of tax pros around the country who are used to working with investors from all over the US (and even the world, for some tax pros). There's a great checklist in the forums that gives you an idea of what to ask your potential tax pro, and it can be used for a remote preparer or a local one: 

Questions to ask a potential Accountant (biggerpockets.com)

Hope this helps!
~Chelsea

Short term capital gains. I.e. taxed at your normal income tax bracket. 

$20k + your other total income = what tax bracket you are in. Somewhere between 10-37%. 
google has the answers you are looking for. 

@Michael C. this would not be a capital gain situation. This is a situation of purchasing and selling inventory as a business, and would be taxed in the same manner as if you were purchasing t-shirts and reselling them (or vehicles, if you want to get into a higher price point object). Unless a property was used as an investment, it's not subject to capital gains.

@Julio Velazquez
You're not paying taxes on your assignment fee. You're paying taxes on your net profit, which is income minus expenses. And you're paying taxes per year, not per deal.

For example, if you collected a $5k assignment in February and another $10k in September and nothing else for the year - then a) your total gross income is $15k and b) you ain't good at wholesaling ;)

If you spent $20k on marketing, driving and all other deductible expenses, then you actually have a $15k - $20k = $5k net loss. Your taxes will go down, not up.

This is why you need to know your projected income and your projected expenses before setting some rule of thumb of how much to set aside for taxes from each deal. It also depends on your other income (and that of your spouse if married), your tax withholdings at your job , your investments, your family situation, your state and so on. 

So it could be anywhere between 0% and 40%.

@Chelsea Monk thank you for replying and providing great information, I actually haven't started an LLC or an S- CORP. I was planning to start under my name then open an LLC or an S-Corp what are your thoughts on that?

@Michael Plaks I can’t say I’m good or bad just starting have yet to get a property under contract but it’s only been 2-3 weeks now and we have put a few offers in . Lol

I wasn’t even thinking about the expenses, I do some driving for dollars but I mainly use PropStream and the mls for deals along with other strategies.

I figured it wouldn’t be per deal just figured i should probably set something aside so when tax season comes I have set the correct amount aside. But now I understand it’s based off my entire income and what bracket I fall into.

Thank you for the help.

Originally posted by @Julio Velazquez :

@Chelsea Monk thank you for replying and providing great information, I actually haven't started an LLC or an S- CORP. I was planning to start under my name then open an LLC or an S-Corp what are your thoughts on that?

Starting under your name is perfect. You should speak with an attorney about whether an LLC is the right move for you, as that's more of a legal move than a tax move since an SMLLC is a disregarded entity unless you file a tax election.

Absolutely, under NO circumstances, should you elect S Corp status without consulting your tax pro. The extra costs for compliance will more than outweigh tax savings if your income can't support the election.

@Chelsea Monk I’ll get on that with my attorney right away thank you, youve been so helpful I greatly appreciate it.

I wasn’t aware of that with the S-Corp thank you.

@Julio Velazquez

Wholesaling is considered a business.
The good thing about having a business is that you don't pay tax on 'gross income' but you pay tax on 'net income'>

Below are some basic deductions available for 'wholesalers'

1) Vehicle expenses(Mileage or actual)
2) Apps / programs to find leads
3) Home office
4)etc

You are in the NYC area, I would suggest finding a CPA who is located within NY/NYC as the tax laws for those who have a business within NYC are complex.

Most 'tax professionals' who mention use anyone across the country is pulling your tongue. 

Best of luck in your search