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Car Forum / Ferrari Cars / May 2004Large Sum Tax/Gift Question within a legal C Corporation scenario
(I hope this isn't a rude question, but it's a serious one. I don't want to overpay the US government. That isn't being patriotic. So, hopefully someone can see the best approach for me to take with the scenario poised below. I am in a personal information discovery phase right now and will hire a tax attorney to execute this, but want to see what third-party opinions have to say as I am naive about the process, and want to make the smartest move going forward.) If my C Corporation pays me $2.3M to buy a house, car, other personal items, is it better to go down a path to have this full amount paid to me in one lump sum, with me barring the separate personal tax responsibilities after the transaction, or is it smarter/better to have the corporation buy these items and sell them to me for $1.00? (btw & FYI this transaction is considered compensation for the great work I performed for free over the last 4 years building the company.) So, OK. Don't get mad at the gifts/or the amount just looking for sound logical advice on how I can approach this. Any level of detail would be greatly appreciated, and maybe others will learn too that are on my track. I simply have no idea how to calculate what my tax baring responsibilities will be. Thanks so much. Julia > (I hope this isn't a rude question, but it's a serious one. I don't > want to overpay the US government. That isn't being patriotic. So, [quoted text clipped - 16 lines] > on my track. I simply have no idea how to calculate what my tax > baring responsibilities will be. Thanks so much. Julia Substance rules over form, if the corporation is giving something to you, it is either a repayment of funds loaned (if any), compensation for services, or a dividend (distribution of retained earnings). One option is that if you lent your corporation any monies, have the corporation repay the debt first. The Corporation will have income, you will not. Another is that if you have retained earnings, pay them out to you as dividends and take advantage of the current low rate of tax on dividends while it's still here. Out of current earnings, consider just a regular salary/bonus payment, sure there are payroll taxes but the payment is a deduction to the Corporation and income to you, but you avoid the corporate income tax on that amount. Once you are over the Soc Sec cap, the benefits really show. The best thing is sit down with a professional and play with the numbers to see what combination will result with the lowest overall tax burden. Having the corporation buy the stuff and sell it to you for next to nothing does nothing, as losses to related parties cannot be deducted, and it will not effect your corporate tax and at worst can be later ruled to be constructive dividends and added to your income. -- Richard A Macdonald, CPA/EA Dedicated student of Fr Luca Paccioli, Master Juggler. Gib mir schokolade und niemand wird verletzt!! > (I hope this isn't a rude question, but it's a serious one. I don't > want to overpay the US government. That isn't Julia - you are smelling pretty spammy today. Why don't you take a hike? MC > (I hope this isn't a rude question, but it's a serious one. I don't > want to overpay the US government. That isn't being patriotic. So, [quoted text clipped - 16 lines] > on my track. I simply have no idea how to calculate what my tax > baring responsibilities will be. Thanks so much. Julia If your C Corp sells you 2.3 million dollars worth of stuff in return for the 4 years of hard work you did, you are either going to pay for it as a dividend, or as ordinary income. If you are unlucky,. it will be disallowed as unfair compensation and end up being taxable to you, personally, and not deductible to the corporation. By the way, you're getting this answer on alt.autos.ferrari on the internet. So when the audit comes up you may want to be sure to tell the IRS you were getting your tax advice from car people on the internet. On a 2.3 million dollar issue. That will impress them. But then I note you'll be hiring a tax attorney "to execute this". Be sure to ask him for some advice on your Ferrari. At least you have the sense to consult a professonal BEFORE making a dumb move. Remember to share with your tax attorney your internationally published question so he can take that fact into consideration when advising you. And get a spell checker. Grumpily yours, REInvestments
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