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.
|
|
|
|
|
|
|
|
|
|
|


With gas prices at an all time high before Hurricane... Read More
Employers often ask employees to designate the amount of tax... Read More
Own residential rental properties? This article discusses how income from... Read More
Taxpayers have two easy and convenient options for getting copies... Read More
Haven't done your taxes yet? No problem. Now there is... Read More
Estate taxes. It's not enough to simply know they exist,... Read More
To tax or not to tax - this question could... Read More
If you have employees, you are responsible for paying a... Read More
No one likes paying tax. Everyone understands that tax is... Read More
One can never underestimate the enthusiasm that politicians have for... Read More
As a sole proprietor, it's wise to familiarize yourself with... Read More
Six Urban Myths ? Taxation"I am proud to be paying... Read More
Beware of advertisements that claim to settle tax debts for... Read More
Newlyweds and the recently divorced should make sure that names... Read More
Anyone who is closely related to an accountant knows that... Read More
Are you in the middle of a disagreement with the... Read More
A Federal Tax Lien (FTL) is a legal instrument that... Read More
If you are environmentally conscious and purchase a 2005 Ford... Read More
In the largest criminal tax case ever filed, KMPG has... Read More
Tilting the Tax Laws in Your Favor.In order to accelerate... Read More
Marketing is a necessary expense in running practically any business... Read More
Self-assessment relies on taxpayers voluntarily meeting their tax obligations. This... Read More
IRS Tax forms can be confusing.Am I a 1099 or... Read More
Background issues of access to recordsTo assess the records at... Read More
It's a moment every person dreads. You pick up the... Read More
Your days as an entrepreneur and businessperson are consumed with... Read More
The electronic transaction ordinance defines the certificated copies in which... Read More
You're at your office, or home, and the doorbell rings... Read More
Managing a business small, medium or big requires you to... Read More
"What we've got here is a failure to communicate." ... Read More
As a small business owner, it's wise to familiarize yourself... Read More
QUESTION: I have been contacted by my local city... Read More
You've been feeling uneasy (perhaps even guilty) because you've failed... Read More


If your identity is stolen, your finances can quickly become... Read More
Once a year Canadian taxpayers are required, by law, to... Read More
If your business has employees, you must pay employment taxes.... Read More
The Internal Revenue Service has certified the 2006 Toyota Highlander... Read More
Assume a buyer in Pakistan downloads software from the Internet... Read More
In trying to comply with tax laws for your e-business,... Read More
"What we've got here is a failure to communicate." ... Read More
Strategic planning throughout the year results in a minimal tax... Read More
"Deducting Meals and Entertainment"O.K. You've been working really hard on... Read More
Excerpted from the new book, "How to Do Space Age... Read More
In a past article I relayed the plight of the... Read More
While there are many equally valid reasons to incorporate, saving... Read More
The end of tax filing extensions is quickly approaching. What... Read More
No one likes paying tax. Everyone understands that tax is... Read More
It may not be high on the list of wedding... Read More
OverviewIn the Pre-Budget Report of December 2003 the Chancellor Gordon... Read More
As teachers and students head back to school following a... Read More
One of the most important, but least understood or appreciated... Read More
If you are environmentally conscious and purchase a 2005 Ford... Read More
As a sole proprietor, it's wise to familiarize yourself with... Read More
1812The first attempt to impose an income tax on America... Read More
Someone once said, 'the best way to calculate your taxes... Read More
Deducting Your Auto ExpensesAuto deductions are a very complex topic.... Read More
Taxpayers have two easy and convenient options for getting copies... Read More
Following is a reproduction of the IRS's rules and requirements... Read More
In the latest Star Wars episode, the evil empire executes... Read More
According to the IRS, taxpayers underpay their taxes by some... Read More
So, you were pleasantly surprised to learn that you are... Read More
It's a major fear for most Americans: A notice from... Read More
Haven't done your taxes yet? No problem. Now there is... Read More
Own residential rental properties? This article discusses how income from... Read More
Managing a business small, medium or big requires you to... Read More
Ever wish that, as a business owner, you knew exactly... Read More
Tax |