Let us create a 3d Digital eBook for you! DigyCat.com
Business Tax Loophole: Leasing Assets To Your Corporation
While there are many equally valid reasons to incorporate, saving money on taxes is a consideration that can yield relatively immediate results. Leasing assets to your corporation is a tax strategy you should absolutely consider if you already have a corporation or are thinking about forming one. Here's how it works.
Just because you incorporate doesn't mean that the corporation must own all of the assets it uses. In fact there are many legal, tax and financial considerations for NOT having your corporation own its own assets.
Leasing assets to your corporation is a perfectly legal and advantageous way to reduce your overall tax liability. When you lease assets to your corporation, the business pays a lease or rental payment and you in turn claim the lease or rental income. By doing this, you as the lessor get to deduct items such as acquisition interest, depreciation, repairs and maintenance, insurance and administrative costs.
When interest and depreciation deductions are exhausted you can then transfer the assets to a family member in a lower tax bracket or you can sell the assets to the corporation. A sale to the corporation would give it a higher tax basis (cost) than it had in the hands of the lessor (you). This would increase the corporation's depreciation deductions, thereby reducing its tax liability.
If you haven't noticed already, leasing assets to your corporation is a fabulous way to pull money out of the business instead of through payroll. When you take a paycheck, you've got payroll deductions to consider. Not so when you take a rent check.
Another reason to lease assets to your corporation has to do with double taxation. If your corporation sells appreciable assets for a big gain, and you try and take the money out of the company, you will get clobbered with taxes?twice. This will not be the case if you lease the asset to the corporation. Under this scenario, you will only be taxed once.
From a legal standpoint, it's also better to have your corporation own as little assets as possible if you are in a "high risk" industry subject to lawsuits. If you lease assets to your corporation and your corporation gets sued, it's tough for a hostile party to seize the assets if they are in your name and NOT the corporation's.
You may rent almost any asset to your corporation. Examples include, office space, machinery and equipment, vehicles, computers and peripherals and real estate.
Besides renting the assets personally, you may use a multiple entity arrangement such as partnerships, S corporations or limited-liability-companies to rent the assets to a corporation. However, you shouldn't use another regular corporation because it may be deemed a personal holding company (where most of its income is from passive income such as rents and royalties, etc.). Personal holding companies are subject to a penalty that would defeat any tax savings rental strategy.
The requirements for leasing assets to your corporation are as follows:
So there you have it, more good reasons to operate your business as a corporation. My final piece of advice is this: Make sure you consult with your attorney and tax advisor before making any important legal or financial decision. As with most things legal or tax-related, there are many exceptions and special rules that apply. Your attorney or tax advisor will be able to advise you correctly based on your own unique circumstances and objectives.
About The Author
Alex Goumakos is a CPA, business advisor and guest consultant of Active Filings LLC, a professional incorporating company that provides services in all US.
Taxes - Google News
This RSS feed URL is deprecated, please update. New URLs can be found in the footers at https://news.google.com/news
Tax Deduction for Alimony Payments? - Yes!
Over 50% of marriages end in divorce in the United States. Many divorce decrees include provisions for the payment of alimony.
Render Unto Caesar
Once a year Canadian taxpayers are required, by law, to file an income tax return in the prescribed form: $150(1).For individuals: $150(1)(d) ITA, they must do so by April 30 of the following year, provided that they owe any taxes or if they are served with a requirement to file: $150(2) ITA.
Amending Procedural Laws for Collection of E-taxation
The electronic transaction ordinance defines the certificated copies in which are to be presented for adjudication. Where any law requires or permits the production of certified copies of any records, such requirement or permission shall extend to print outs or other forms of display of electronic documents where, in addition to fulfillment of the requirements as may be specified in such law relating to certification, it is verified in the manner laid down by the appropriate authority.
How to Reduce the Estate Tax Using the A-B Revocable Living Trust
In a past article I relayed the plight of the widow who stated:"I didn't realize what an A-B Revocable Living Trust meant and that it had to be divided between the survivor and the deceased spouse and that I am limited as to what I can use from his share."She told me that she only learned of this after her husband passed away.
Taxing Overseas Firms for SOX Compliance
The Sarbanes-Oxley Act, also called the Public Company Accounting Reform and Investor Protection Act of 2002 was signed into law on July 30, 2002 by President Bush. In the aftermath of Enron, Arthur Andersen, Global Crossing, and WorldCom, SOX promises greater corporate accountability and transparency.
What You Need To Know About Taxes If You're Getting Married
It may not be high on the list of wedding planning activities, but there are a few simple steps that can help keep tax issues from interrupting your newly wedded bliss. If you recently married, check out your new tax situation.
IRS Obtains More Than 100 Injunctions Against Tax Scheme Promoters
The IRS has obtained civil injunctions against more than 100 promoters of illegal tax avoidance schemes and fraudulent return preparers in an ongoing crackdown that began in 2001. Many of the injunctions, obtained in cooperation with the Department of Justice, also order the promoters to turn over client lists and to cease preparing federal income tax returns for others.
How Likely Are You To Be Audited?
Statistics for IndividualsUnfortunately, the IRS increased its rate of auditing individuals in 2003 when compared to 2002. The increase was approximately 14%, but still constituted only 6.
Another Tax Loophole
Just image, you are a small manufacturing company, business has been good, but yesterday you received a call from a customer who wants 50,000 widgets in 45 days. The customer is a large account and if you turn the business down, he may never call you again.
Deducting Points On Home Refinances
Deduction of Refinance PointsAny points that you pay in the refinancing of your residence are tax deductible over the length of the loan in question. The deduction is allowable only if the residence is your primary home and the new mortgage replaces a previous one and/or is used to improve the residence.
Employment Taxes - Depositing With The IRS
If your business has employees, you must pay employment taxes. The payment system can be a bit confusing, so this article discusses how to go about depositing employment taxes with the IRS.
Business Tax Deductions
As we enter mid-March, taxpayers begin to become very interested in deductions. Following are a few that you may be entitled to claim.
Alas! In E-Commerce Taxland
In trying to comply with tax laws for your e-business, you may find yourself falling down the rabbit-hole,going through the looking glass, and attending a Mad Tea-Party.Common sense, logic, and fairness never did apply fully to the field of taxation but this is especially true of e-commerce transactions.
Save Money on Taxes - Is the Only Way to Get Your Tax Savings is to Sleep With an IRS Agent?
Tilting the Tax Laws in Your Favor.In order to accelerate your movement along the wealth building curve, you absolutely MUST have your own business.
Small Businesses Filing Amended Federal Tax Returns to Recover Money
Small Businesses Filing Amended Federal Tax Returns to Recover MoneyBy Darren Oliver April 15th may be gone but, but certainly not forgotten - especially if you, like millions of small businesses, unknowingly overpaid your federal taxes and can recover money by filing an amended return. According to the IRS tax code, you have three years from the filing date for the tax year in question to file an amended return.
How to Check the Status of Your Tax Refund Online
So, you were pleasantly surprised to learn that you are getting a refund on your taxes. Congratulations! The question for most taxpayers expecting a return is, "Where is my refund?"Check Your Refund Status OnlineThe easiest way to check on your refund is to ask the IRS through IRS.
Tax Trap #1 -- Waiting to Incorporate: What A Difference A Date Can Make
NOTE: This is the first in a series of 5 articles:"Small Business Tax Traps and How To Avoid Them"If you're a sole proprietor, perhaps you've consideredincorporating your small business or self-employmentactivity.And so maybe you've been wondering,"When is the best time to incorporate?"From a legal standpoint, any time is the best time.
Small Business Tax Deduction - Write-Off Bad Debts
Practically every small business has receivables that it cannot obtain from clients. If your small business doesn't have any such receivables, consider yourself lucky.
Tax Trap #4 -- The Quagmire of Depreciation
If you are a Small Business Owner or Self-Employed Person,there's one especially lucrative tax break that not onlyputs money in your pocket, it also makes the filing ofyour business tax return much simpler.What am I talking about? It's called the Section 179deduction, and if there's one tax break you need to understand, this is it.
Gambling Income and Expenses - Tax Requirements
Hit a big one? With more and more gambling establishments, keep in mind the IRS requires people to report all gambling winnings as income on their tax return.Gambling income includes, but is not limited to, winnings from lotteries, raffles, horse and dog races and casinos.
PrimeNews Domain Is For Sale - $5,000 For Enquiries eMail Us
© www.PrimeNews.biz - 2012