How Can a Corporation be Used to Limit Liability and Maximize Tax Advantages?
A corporation is an effective device for buying and selling real estate on a short term basis (also called “flipping”). A land trust is an effective device for taking title, but it will not protect the beneficiaries from personal liability (since the beneficiary of a land trust reserves the right to direct the actions of the trustee, the beneficiaries can be held liable for mishaps on the property). Thus, if you “buy and flip” property, you should have the beneficiary of the trust be a corporation to limit your liability. A corporation will limit the problem of IRS “dealer” status. A dealer is one who regularly buys and sells real estate as a business. If an individual is tagged as a “dealer,” the profits on his sale of property are subject to self employment tax (approximately 15%). Corporate dividends, on the other hand, are not subject to self employment tax (although the investor may have to take some salary, subject to self employment tax, to satisfy the aggressive IRS auditor). W
