All Forum Posts by: Brandon Hall

What was the cost of the repair? If under $2500, expense using the De Minimis Safe Harbor.

@John B. in my experience, the syndicators who require more money are those that have more experience. They've learned that a person who can only invest $15k will value that $15k way more than a person who can invest $50k will value their $50k.

I had a client tell me that one of their bigger investors followed up WEEKS after they drafted high six figured from his account "just to make sure they got the wire okay." Weeks, not minutes, hours, or even days. Crazy!

Folks with big money don't play with small fish and vice versa. 

@William Allen nice job on the analysis! Once change to the calculation of gain:

Sales Price: $100k
Closing Costs: $10k
Net Sales Price: $90k

Basis: $75k ($90k purchase + $10k improvements - $25k depreciation)
Gain: $15k

The key here however is that since the total gain does not exceed the total depreciation taken, the gain is considered Unrecaptured Section 1250 Gain (instead of capital gain) which is fancy terminology for depreciation recapture. Here, the gain of $15k is likely taxed at 25%. 

Again, nice job on this!!

Nah not true. Maybe if you did one flip every other year. But not if you're consistently flipping. Unless your W2 income is super high and the flipping income on a relative basis is tiny.

I don't think I can give personal info but click the link in my signature to find my site. Or google Real Estate CPA :)

Yes and yes. Many clients in NJ.

Yes it will. You'd be the only member of the LLC or the only person materially participating in the business.

@Ben C. here's how it works.

FICA taxes are made up of Social Security (SS) and Medicare taxes. These amount to a total of 15.3% on each dollar of salary (or earnings in the case of a non-S-corp.

The SS tax = 12.4% while Medicare = 2.9%.

When you are an employee, your employer will pay half, and you will pay half. When you are a business owner, you will pay the entire 15.3%.

If your W2 earnings phase you out of the SS tax, meaning that your earnings are above the $127.2k threshold referenced above, then your self-employment earnings will only be subject to the Medicare tax. For people who flip properties, this can be an advantageous position because you have the ability to earn capital quickly and in large chunks without paying the standard 15.3% rate.

If you have an S-Corp and you are the sole owner, that SS threshold is $127.2k. If your spouse is also an owner, that threshold will double if she materially participates and is paid a salary. The key with S-Corps is: who gets a salary? Whomever is paid a salary is subject to FICA. So we wouldn't want to pay the spouse if her W2 earnings are below the $127.2k. It's a per-person basis, not aggregate, so your W2 earnings cannot be "applied" to her if that makes sense.

If I were you, I'd keep it simple and not go the S-Corp route. There are plenty of strategic tax options available without complicating things and utilizing an S-Corp too soon. The fees you pay to your accountant, annual filings, and payroll provider will pretty much nix your savings from the S-Corp unless you are earning $200k per year from the flipping biz.

Solution: definitely get an LLC up and running asap. Make sure all flips are owned by that LLC and all profits pass through that LLC (pending legal advice of course). Then do as others suggested and speak with a CPA asap. The cool thing about an LLC is that we can retroactively elect the S status if we deem it necessary and we can retroactively reclassify distributions as salary. But we have to have an LLC in place in order to do so.

I advise almost all of my clients to set up an LLC and route everything through that as it provides us with maximum flexibility in how we treat it going forward.

Is the S-Corp right for you? No idea, but put yourself in a flexible position now so that a pro can help you later.

@Grady L. you are limited to a $100k HELOC if you are using those funds for personal purposes (think buying a car or improving you primary residence).

You can take a HELOC in any amount if those funds are going to be utilized for business or rental activities. The $100k limited no longer applies. The funds are "traced" to where they were applied and the interest is deducted there.

Here's the thing - CA has a very liberal definition of what "doing business" means and if you are deemed to be doing business in CA, you will be subject to applicable franchise fees. 

So if you have an LLC in another state and no LLC in CA, but you live in CA and operate from your home in CA (or an office or coffee shop or wherever in CA), then you will need to create a foreign entity in CA and pay the $800 minimum franchise fee.

Does everyone do this? No. Should you seek legal counsel if you intend to avoid this? Yes. 

You could potentially avoid this by granting an ownership stake in your LLC to a non-resident of CA (think friends or family). This person would need to be the general partner. You would be a passive partner, basically the money guy. At that point, you're not actually doing business in CA because you're not calling the shots. You would just need to make sure you can actually structure deals and your facts to support that strategy as it can hurt if you're caught red handed.

@Paul Winka if tax prep is the only service that's really being rendered, it's definitely high for the position you are in. Especially if it wasn't communicated up front.

Is your CPA billing hourly? If so, that's your first problem. 

CPAs need to get rid of the surprise bills.