Home
>
Tax
>
Business Tax Loophole: Leasing Assets To Your Corporation

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:

You must draw up a formal and bona fide lease agreement. You should treat the leasing agreement just like you would if you were dealing with an unrelated party.
The rental amount you establish must be fair. In other words, you can't charge anything you want. It has to be reasonable and in line with what's being charged for rental of similar assets in your area.

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.

alex@activefilings.com

River Forest car service to O'Hare .. Lockport Chicago limo O’Hare

In The News:

Landmark Admin revises May 2024 cyberattack scope to show twice as many people were affected. Kurt “CyberGuy" Knutsson gives tips to help stay safe from an insurance data breach.

Tech expert Kurt “CyberGuy" Knutsson talks about how Yamaha’s hydrogen outboard motor could revolutionize boating with zero emissions.

Tech expert Kurt “CyberGuy" Knutsson reveals how to memorialize or remove a deceased loved one’s Facebook account and protect their digital legacy from misuse or scams.

Tech expert Kurt “CyberGuy" Knutsson says an Apple Watch saved psychiatrist Amanda Faulkner by detecting deadly leukemia early.

Scammers and fraudsters are increasingly targeting the most vulnerable, especially nursing homes and the personal data of their residents. Kurt the CyberGuy has safety tips.

Infected USB flash drives can spread malware among multiple organizations in ways that can easily bypass traditional security systems.

With a fully automated warehouse system and AI-powered robots, Ocado's Hive picks, packs and delivers grocery store orders in just a few minutes.

Stay up to date on the latest AI technology advancements and learn about the challenges and opportunities AI presents now and for the future.

Recycling robots are using artificial intelligence to learn how to sort recyclables by recognizing patterns in colors, textures, shapes and logos.

The Reachy 2 robot is designed to be friendly and approachable, inviting natural interaction and is perfect for research, education and experimenting with embodied AI.

Kurt "CyberGuy" Knutsson shares several easy ways to keep your credit cards safe from digital thieves while you're traveling this summer.

Arcturus sets up cameras around the edges of baseball stadiums to capture real-time action and generate a 3D digital clone of the game.

Stay up to date on the latest AI technology advancements and learn about the challenges and opportunities AI presents now and for the future.

The CyberGuy explains why healthcare organizations are vulnerable to hackers after there have been a half dozen data breaches this year.

Developed at two California universities, the innovative technology combines brain-computer interfaces with advanced AI to decode neural activity into audible speech.

Microsoft patches 12 critical flaws, but six have already been exploited by criminals. Kurt “CyberGuy" Knutsson says updating your system is only a short-term fix.

Tech expert Kurt “CyberGuy" Knutsson discusses how robots can milk, feed and clean cows on dairy farms, boosting efficiency and comfort.

Tech expert Kurt “CyberGuy" Knutsson says quantum internet ensures unhackable security and redefines online privacy and speed.

Kawasaki's CORLEO is a hydrogen-powered, AI-driven rideable robot. Tech expert Kurt “CyberGuy" Knutsson reports on this new way of thinking about off-road transportation.

The CyberGuy breaks down five mobile privacy terms that could make a difference when it comes to keeping your personal information safe.

A groundbreaking robot that's like a real-life Wall-E uses advanced artificial intelligence to replicate natural gestures and deliberate actions with striking accuracy.

If not properly managed, Windows Defender Application Control, a security feature with Windows, could be a potential security vulnerability.

Stay up to date on the latest AI technology advancements and learn about the challenges and opportunities AI presents now and for the future.

FlashBot Arm, a semi-humanoid robot, acts more like a human than traditional robots, and you may see it working at a restaurant, healthcare center or hotel.

There are multiple ways to find your missing Android phone after it goes missing. One method involves using a smartwatch to ping your phone.