Posted by Dave T on March 12, 2002 at 23:09:22:
In your scenario, your profit is taxed at the same rate as your other ordinary income. Even if you had formed a single-member LLC to deal this property, the income will still flow to you as ordinary income and is taxed at your marginal tax rate.
Forming a corporation to “deal” the property may have a tax advantage over the single-member LLC. The first 50K in profit to a C-Corp is taxed at 15%. If your personal tax bracket is higher than this, then you may find that a C-Corp reduces your tax liability for your flips.
The general drawback to a C-Corp is that money you withdraw from your company (as a dividend or salary) is taxable to you at your marginal tax bracket. Dividends paid by the corporation are paid after the corporate taxes have already been paid, whereas, salary is an expense to the corporation and paid to you with pre-tax dollars. Depending upon how you take money from the corporation, you may be paying taxes on that same money twice.