Wholesaling and taxes

Provo, UT · Member since 2017 · 19 posts · 5 votes

Hey all, I’m working on wholesaling right now and to be honest I don’t know much about taxes. I’ve only had to do my taxes once or twice and only through turbotax and such. Is there a certain percentage of my wholesaling profits I should expect to pay for taxes?

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Michael PlaksPro Member

Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes

Originally posted by @Carter Bushman:

Hey all,

I’m working on wholesaling right now and to be honest I don’t know much about taxes. I’ve only had to do my taxes once or twice and only through turbotax and such. Is there a certain percentage of my wholesaling profits I should expect to pay for taxes?

Looks like you're talking about setting aside taxes for your future profits.

First, let's define "profits." It's all your assignment fees MINUS all expenses - such as marketing, education, driving (a big one!) etc. Whatever is left after these deduction is called net business income, or unofficially profit. It will be subject to 3 taxes, as @Basit Siddiqi explained: Federal income tax, Utah state tax, and Federal self-employment tax (Soc Security + Medicare).

Together, they end up being anywhere between 15% and 40%. A rule of thumb is to set aside 1/3 of the net profit. Since you do not know your expenses, then you can instead use 1/4 of gross (before expenses) income. In other words, set aside 1/4 from each assignment check for taxes.

Good luck wholesaling! Tough to start, but could be rewarding.

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Aaron K.
Specialist · Riverside, CA · Member since 2015 · 6k+ posts · 3k+ votes
8y
Should be able to find your tax bracket easy enough online, and because it is an active way of earning money expect to pay self employment tax on top of that (payroll taxes etc.)
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Basit SiddiqiBusiness Member
Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
8y
@Carter Bushman

Are we talking about 2017 or 2018?
Wholesaling is ordinary income and there are no tax preferential treatment for wholesale income.

Federal income tax rates for 2017 ranged from 10% to 39.6%
Federal Income tax rates for 2018 ranges from 10% to 37%

Wholesale income is also subject to self-employment tax of 15.3%(If you have a W-2 job that makes over the social security wage base - you would only be paying 2.9% in self-employment tax instead of 15.3%)

You would also be subject to state income taxes
Utah tax rate is 5%(flat)

You have to note that you should be entitled to expenses to offset the income you get from the assignment fee.
There are also strategies involved to limit your exposure to self-employment tax.

If you are uncomfortable doing your own taxes - you may want to reach out to an accountant who can help you with this. There are many accountants here on BP who work with investors remotely.
[email protected]917-280-8544
Basit Siddiqi CPA4.979 Reviews
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Michael PlaksPro Member
Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
8y
Originally posted by @Carter Bushman:
Hey all,
I’m working on wholesaling right now and to be honest I don’t know much about taxes. I’ve only had to do my taxes once or twice and only through turbotax and such. Is there a certain percentage of my wholesaling profits I should expect to pay for taxes?
Looks like you're talking about setting aside taxes for your future profits.
First, let's define "profits." It's all your assignment fees MINUS all expenses - such as marketing, education, driving (a big one!) etc. Whatever is left after these deduction is called net business income, or unofficially profit. It will be subject to 3 taxes, as @Basit Siddiqi explained: Federal income tax, Utah state tax, and Federal self-employment tax (Soc Security + Medicare).
Together, they end up being anywhere between 15% and 40%. A rule of thumb is to set aside 1/3 of the net profit. Since you do not know your expenses, then you can instead use 1/4 of gross (before expenses) income. In other words, set aside 1/4 from each assignment check for taxes.
Good luck wholesaling! Tough to start, but could be rewarding.
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