I’m sure Bill already addressed this but an S-corp and partnerships are pass through entities. They are primarily shells, but income and loses flow through to your personal 1040 return. You can’t leave assets in the corporation nor does the corporation pay dividends. It is basically used to negate double taxation for smaller business owners. In order to qualify as an S-corp, there are certain conditions that must be met. One of wish is the number of people or owners of the corporation. I don’t have my business law text so I can’t remember off the top of my head. You were probably thinking of a C-Corp, which is treated separately than an individual. One more thing to remember is that with a C-corp if you have excessive gains, the service (IRS) will hit you with a personal holdings tax. This is if the corp was formed to hold real estate or participate in passive incoming producing activities.
S-Corporations and Double Taxing - Posted by David Caro
Posted by David Caro on October 17, 2003 at 24:55:55:
I’m just starting out in REI and have read quite a few books on buying preforeclosures and REO’s. Hopefully my questions are in the appropriate place.
I took Kiyosake’s advice and formed a corporation for tax purposes. I elected for S corp status for the “single tax” benefit. My intentions are to make some rei’s through double closing some lis pendens while leaving all of the profit in the corporation until I have enough to buy up some assets in commercial real estate. As far as I know, in an S-Corp you are only taxed when you withdraw income. Therefore, if I leave the gains in the corporation until I trade up to some commercial rental property I shouldn’t have to pay taxes (since I’m not withdrawing any income from the s-corp).
My Questions:
1 - Is this legal?!
2 - I shouldn’t need to use any 1031 deferals - right?
3 - Where do I stand as far as capital gains, etc…