annual s-corp tax strategy

8 Replies

Should a flipper (who is structured as an s-corp) consider buying additional properties before the years end in order to offset higher than normal profits on a tax return?

They're not going to be an expense- so...no. 

OK, so the "inventory" of all of the year's real estate purchases in the s-corp are not added up and then subtracted from the year's profits to get the net taxable income?

@Ben Brigham I'm just an amateur accountant but I'm sure the real accountants will give you a firm no on that. Look at it this way, If you bought a bought a billion dollar property and didn't sell it before year end would it make sense for you to declare a billion dollar lose this year?

What you need are general business expenses. Here's a few suggestions. 

- Max out a retirement plan - look at 401k or SEP IRA. You can put a lot of profits into these and in future years use them again in real estate by borrowing or self-directing.

- Hire a family member to work in your business

- Go to some networking events and look for new investors/go check out a new potential market

- Establish/fix-up your office.

- Buy some Technology - new devices or software.

- Ask Contractors to invoice you NOW for work they have done or are about to do.

- Pre-buy construction materials maybe even some storage to put them in

- Buy tools for you or your contractors to use on a future flip

 - Hire an accountant to help with some of these ideas

No. Buying additional properties are not "expenses" for tax purposes. Acquisition costs for inventory (more houses) are not expenses. 

In order to offset the high profits, you should accelerate expenses for 2016, i.e. pay as many outstanding bills as you can prior to December 31st. Pay vendors, mortgage, taxes, utilities, landscaping, etc. Pay expenses to offset income.

@Ben Brigham

Since flipping generates earned income, a Solo 401k could be one of your best options for offsetting taxes on that income. In addition to being a tax shelter, the contributions will turn into another source of funds for investment, in this case growing completely tax deferred. 

Thanks! It's so nice to have you all here to help me in my learning process! No such thing as a "dumb question", right?
Remind me to never tell my wife that buying new things is not considered an expense!😉

@Ben Brigham That's funny. Interesting that not everything that costs money is an "expense" for these purposes, isn't it? It might help to clarify with the term "tax-deductible business expense" or something similar.

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