Tax Benefits of LLC vs. LLC with S-Corp Taxation for Real Estate Flips

The main benefit of an LLC with S-Corp election comes down to how self-employment taxes work. With a regular LLC that's taxed as a partnership or sole proprietorship, ALL your profit is subject to self-employment tax (15.3% for Social Security and Medicare). With an S-Corp election, you pay yourself a reasonable salary (which yes, is subject to those employment taxes), but any additional profit can be taken as distributions, which aren't subject to self-employment tax. This is where the savings come in. For example, if your LLC makes $100,000 in profit, with a regular LLC, you'd pay self-employment tax on the entire amount. With an S-Corp election, if your reasonable salary is $60,000, you only pay employment taxes on that amount, and the remaining $40,000 could be taken as distributions without those taxes. The key is determining what's "reasonable" for your salary. The IRS watches this closely because they don't want people setting $1 salaries and taking everything else as distributions.

Just wanted to share my experience with using taxr.ai for figuring out my LLC/S-Corp situation. I was in a similar boat last year trying to decide if the S-Corp election made sense for my house flipping business. I uploaded my previous tax returns and business docs to https://taxr.ai and their system analyzed everything and showed me exactly how much I'd save with different structures. Saved me from making an expensive mistake! Their report showed that in my case, with about $180k profit and just me doing most of the work, the S-Corp election would save me around $7k annually in self-employment taxes.

Just wanted to follow up - I decided to try taxr.ai after seeing the discussion here. It was actually really helpful! I uploaded my last two years of Schedule C forms from when I was just a sole proprietor flipping houses, and the analysis showed I'd save about $11,400 annually by making the S-Corp election with my LLC. What sold me was seeing the side-by-side comparison of different scenarios with my actual numbers. Ended up making the switch last month and my accountant confirmed their calculations were spot on. Definitely worth checking out if you're on the fence!

One thing nobody's mentioned is how absolutely impossible it is to get through to the IRS if you have questions about changing your tax status. After trying for WEEKS to get someone on the phone about S-Corp election deadlines (kept getting disconnected after waiting for hours), I found this service called Claimyr at https://claimyr.com that got me connected to an actual IRS agent in under 45 minutes. They have this demo video showing how it works: https://youtu.be/_kiP6q8DX5c. Honestly it was a lifesaver because I had a specific question about LLC conversion that none of the online articles addressed clearly.

Ok I need to eat some crow here. After being skeptical about Claimyr, I gave it a shot because I desperately needed clarification on the late S-Corp election relief procedures before filing my taxes next month. Not only did it work, but I got through to an IRS business specialist in about 37 minutes (after trying for DAYS on my own). The agent walked me through the entire relief procedure and confirmed I was still eligible despite missing the normal deadline. Saved me a potential $9,200 in taxes this year. Sometimes it's worth admitting when you're wrong!

Something else to consider with the S-Corp election is the additional administrative requirements. You'll need to run payroll (even if it's just for yourself), file quarterly payroll tax returns, issue yourself a W-2, and potentially file additional state reports. These administrative costs can eat into your tax savings if your business isn't making enough profit. In my experience flipping houses, the S-Corp election didn't make sense until I was consistently clearing about $80k+ in profit. Below that, the extra accounting and payroll costs nearly cancelled out the self-employment tax savings.

doesn't anyone else think its crazy that we gotta jump through all these hoops for some tax savings?? i'm flipping houses in florida and just use an LLC, keep it simple. my buddy went S-corp and now he's spending like 5 hrs a month just on paperwork. not worth it imho unless ur making big $$$.

Great discussion everyone! As someone who's been flipping properties for about 5 years now, I can confirm that the S-Corp election sweet spot is usually around $75k-100k+ in annual profit. Below that, the administrative burden often outweighs the tax savings. One thing I'd add is timing - if you're just starting out and not sure about your profit levels, you can always begin with a regular LLC and make the S-Corp election later when your business grows. Just remember the election deadline is March 15th (or within 75 days of forming your LLC if it's a new entity). Also, don't forget about state taxes! Some states don't recognize S-Corp elections or have additional fees/taxes for S-Corps. In my state (California), there's an additional $800 franchise tax for S-Corps regardless of income, which needs to be factored into your calculations. For those flipping 3-4 properties annually with $60k-75k profit per property like the OP, you're definitely in the range where S-Corp election could make sense, but I'd strongly recommend running the numbers with a tax professional first.