Originally Posted by bmyco
#1;1120 in business of flipping homes/properties. he buys, repairs, sells. this may take several years to sell. how is this full transaction reports on the 1120?
#2;when purchased but not yet sold? when sold? additional exp associated it? COGS? when?
#1;When you purchase and flip one or more properties in less than 1 year, a good understanding of the tax consequences of your activities is critical. Your flip profits may be subject to state income taxes, federal income taxes. The tax liability that you incur can be as high as 25 to 55 plus percent. You can't get cash out of a C-corp without double taxation OR converting it to W-2 salary. In fact, the ONLY time you would EVER want to be a C-corp was if you needed to take advantage of the higher pension benefits beyond what's available to normal humans. Even if your small business is quite profitable, a C Corp is entitled to so many deductions that it may be possible for your company to have $50k or less in business income after deductions. For example, as the owner of a C Corp, your salary and those of your employees are tax-deductible for the business. Enter on line 1a gross receipts or sales from allof your biz operations, except for amounts that must be reported on lines 4 through 10. Special rules apply to certain income, i.e.,advance pmt,installment sales or etc. Complete and attach Form 1125-A, Cost of Goods Sold, if applicable. Enter on Form 1120, line 2, the amount from Form 1125-A, line 8. See Form 1125-A and its instructions. Failure to provide all pertinent information can result in errors in your tax liability.
#2; you can , on your 1120, deduct all biz related maint/rewpair expenses;irs allows house flippers to deduct business expenses related to their profession from their taxable income. However, the funds house flippers use to purchase properties and make improvements on them are not business expenses: they are capital expenditures. A capital expenditure is an investment that a business or investor makes with the direct intention of seeing the value of that asset increase later. While house flippers can deduct the capital expenses related to purchasing and improving residential properties, they cannot do so until they sell the property. Various other miscellaneous expenses can become tax deductions for house flippers. For instance, in buying and selling residential properties, you may incur various taxes and government fees. These taxes and fees are deductible. If you work through a real estate agent, any real estate commissions you must pay are deductible expenses as well. You may also deduct costs common to businesses in general, such as accounting fees and legal fees
The downside of a C corp is in how it’s taxed. If your corp makes a profit, irs takes a 35 percent chunk of your profits in the corporate income tax, which is among the highest in the world. As of 2013, that tax is slated to increase to 39.6 percent. So the government will take nearly 40 percent of your profits before you even see a dime yourself. Also it is subject to double taxation” meaning that you will get to keep a much lower percentage of your total profits by the time tax time comes. For this reason, the C corp is usually not the first choice of beginning property investors I guess you neeed to mcontact a cpa/ an ea in your localarea for morew info in detail