share your tax saving strategies or pit falls

[John@Outfront]

I had someone suggest my company should buy my truck and rent it to me as well as my house.  any input would be nice

also exposure concerns

 

share your experiences good and bad

[Rockwood]

We set up a leasing company for our trucks to lease to ourselves.  Tax accountants set up and figured all of that out.  I get a monthly bill based on 179 depreciation to zero out income for the leasing company.  Or thereabouts.

[John@Outfront]

what does "179 depreciation to zero out income" mean?

[dbart]

1 hour ago, John@Outfront said:

I had someone suggest my company should buy my truck and rent it to me as well as my house.  any input would be nice

also exposure concerns

 

share your experiences good and bad

Tell the GubMent you and your wife identify as people with multiple personalities and claim all them as dependants, 9 each!

 

[Rockwood]

57 minutes ago, John@Outfront said:

what does "179 depreciation to zero out income" mean?

We use the depreciation over 4 years (IIRC) to determine the lease rate so the leasing company nets zero profits. 

[RayClay]

24 minutes ago, Rockwood said:

We use the depreciation over 4 years (IIRC) to determine the lease rate so the leasing company nets zero profits. 

What is the ballpark tax benefit in this case, and how does it work?

[Realbadlarry]

I worked with a bodyshop chain, the company was it's own company...ran the "business" paid the employees, the equipment inside the buildings was all leased from the leasing company, the buildings were owned by the building company, the outside mechanics came from the "outside" mechanic company...the supplies were bought by...you guessed it...the supplies company.....the main owner  owned ALL of them.... and managed to do very well for himself.... I think the company that showed the biggest losses paid him the highest "consulting fees"  to yep his consulting company..... gets very confusing and tiring for the accountants, but seems to work out for some.

[Lord of the Dunes]

I think the best tax strategy is to tell the IRS you are an illegal alien and they will give you an ITIN. Then when you fill out your taxes, you get to claim up to 25 dependents who may or may not exist. You don't have to prove they exist because they live south of the border. They give you a deduction of $2,000 per dependent, so even if the alien paid no taxes, he automatically gets a $50,000 refund per yr per tax return.

Of course you can file multiple tax returns and have them all mailed to the same address, tons of people do it every yr. So far, the IRS puts no effort into trying to stop illegal aliens from getting taxpayer refunds, so it's a very safe strategy.

 

Edited May 17 by Lord of the Dunes

[AZCG]

1 hour ago, Lord of the Dunes said:

I think the best tax strategy is to tell the IRS you are an illegal alien and they will give you an ITIN. Then when you fill out your taxes, you get to claim up to 25 dependents who may or may not exist. You don't have to prove they exist because they live south of the border. They give you a deduction of $2,000 per dependent, so even if the alien paid no taxes, he automatically gets a $50,000 refund per yr per tax return.

Of course you can file multiple tax returns and have them all mailed to the same address, tons of people do it every yr. So far, the IRS puts no effort into trying to stop illegal aliens from getting taxpayer refunds, so it's a very safe strategy.

 

This isn't a 'tax strategy' it's tax fraud...

https://www.forbes.com/sites/kellyphillipserb/2012/05/15/viral-tax-loophole-video-is-misleading-taxpayer-fraud-is-a-much-bigger-problem/?sh=4cef81902cda

BTW, this article is more than 10 years old.

Edited May 17 by AZCG

[Lord of the Dunes]

17 minutes ago, AZCG said:

 

This isn't a 'tax strategy' it's tax fraud...

https://www.forbes.com/sites/kellyphillipserb/2012/05/15/viral-tax-loophole-video-is-misleading-taxpayer-fraud-is-a-much-bigger-problem/?sh=4cef81902cda

BTW, this article is more than 10 years old.

Sorry, I should have used the sarcasm emoji on that one.

AFAIK, the IRS still hasn't stopped the additional child credit, so the fact that this was publicized about 10 yrs ago makes the IRS look even more incompetent. If that was even possible.

Hopefully others also saw that post and are as disgusted by the tax fraud as I am. Reason # 4,535,987 to close the border.

[AlpineFunco]

Plus one for using the correct term, illegal alien.

[Rockwood]

7 hours ago, RayClay said:

What is the ballpark tax benefit in this case, and how does it work?

Has to be a qualifying vehicle. We depreciate 100% over 4 years. The tax benefit for mom n pop isn’t huge to move over to a leasing company though, since you can just 179 it direct anyway. 

“Leasing” might help for spreading out profits between multiple corporations though. 

<Disclaimer> I am not a tax expert. Tax experts will probably laugh at me. Might be worth bringing up though. </disclaimer>

[Rockwood]

Also: you can buy a truck and “lease” it through Enterprise and other companies. They give you a monthly bill based on depreciation scale that’s easy to write off. At the end of the lease, you pay title transfer and it’s yours. 

[Lord of the Dunes]

This isn't going to eliminate your tax bill, but it might help a little. A long time ago a friend of mine owned his own company and he paid himself $120k/yr. He had a GF who had been with him for 10 yrs so he filed as single and she had no income. I told him to hire her at his company and pay her $40k/yr. Then reduce his pay to $80k/yr. She didn't actually have to do any work, just get her on the payroll and reduce his income to $80k and make sure they file separately.

This dropped his federal tax bill from 24% of $120K =  $28,800 to 22% of $80k = $17,600. Her tax bill was 12% of $40k = $4,800. Together they paid $22,400, a savings of $6,400 or roughly 22%. Between the 2 of them they still made $120k/yr, but they got to keep $6400 more per yr.

I know you're married, so this wouldn't work for you, but if you have a kid or couple of kids who you could hire at work, it might help some. 

My ex-FIL was a master at writing off business expenses. He flew down to MX to meet with clients and chartered a Learjet for 3 days and took his best friend with him. Him and his best friend each got to fly the Learjet for about 15 minutes each. When they landed, he met with the client and the next day he took the client, his best friend and the pilot deep sea fishing for most of the day. They finished up the deal and he wrote off the entire trip as travel expenses. You could do the same with your Glamis trips, write the entire expense as advertising or marketing. 

 

On a slightly related note, I know a guy who made $6M/yr, but didn't want to pay for his son's college education. He hired a film crew to make a highlight reel of his kid playing football. They mailed out several hundred copies on DVD and his kid got a full scholarship at St Joseph's. He put a down payment on a 4 BR house near campus. He gave it to his kid, who rented the other 3 rooms out, which covered the mortgage. He gave his kid an Escalade, the 4 guys hung out and partied like a posse and when he graduated 4 yrs later, he sold the house and the profit from that was more than his entire tuition would have cost. He came back to San Diego, worked for his father at Met Life and put the house profits down on a house worth about $1.5M at the age of 23. That whole family knew how to work the system.

[Surf and Dune]

6 hours ago, Lord of the Dunes said:

This isn't going to eliminate your tax bill, but it might help a little. A long time ago a friend of mine owned his own company and he paid himself $120k/yr. He had a GF who had been with him for 10 yrs so he filed as single and she had no income. I told him to hire her at his company and pay her $40k/yr. Then reduce his pay to $80k/yr. She didn't actually have to do any work, just get her on the payroll and reduce his income to $80k and make sure they file separately.

This dropped his federal tax bill from 24% of $120K =  $28,800 to 22% of $80k = $17,600. Her tax bill was 12% of $40k = $4,800. Together they paid $22,400, a savings of $6,400 or roughly 22%. Between the 2 of them they still made $120k/yr, but they got to keep $6400 more per yr.

I know you're married, so this wouldn't work for you, but if you have a kid or couple of kids who you could hire at work, it might help some. 

My ex-FIL was a master at writing off business expenses. He flew down to MX to meet with clients and chartered a Learjet for 3 days and took his best friend with him. Him and his best friend each got to fly the Learjet for about 15 minutes each. When they landed, he met with the client and the next day he took the client, his best friend and the pilot deep sea fishing for most of the day. They finished up the deal and he wrote off the entire trip as travel expenses. You could do the same with your Glamis trips, write the entire expense as advertising or marketing. 

 

On a slightly related note, I know a guy who made $6M/yr, but didn't want to pay for his son's college education. He hired a film crew to make a highlight reel of his kid playing football. They mailed out several hundred copies on DVD and his kid got a full scholarship at St Joseph's. He put a down payment on a 4 BR house near campus. He gave it to his kid, who rented the other 3 rooms out, which covered the mortgage. He gave his kid an Escalade, the 4 guys hung out and partied like a posse and when he graduated 4 yrs later, he sold the house and the profit from that was more than his entire tuition would have cost. He came back to San Diego, worked for his father at Met Life and put the house profits down on a house worth about $1.5M at the age of 23. That whole family knew how to work the system.

 

 What about the other costs you need to include when you have an employee? Workmans comp? 

How Much Does an Employee Cost You?

By Barbara Weltman on August 22, 2019

Category: Industry Word

When you think about adding a new employee to your payroll, determine what the actual financial cost of doing so means to your business.

---

When you think about adding a new employee to your payroll, determine what the actual financial cost of doing so means to your business. This includes the dollars and cents over and above the basic wage or salary you agree to pay. There’s a rule of thumb that the cost is typically 1.25 to 1.4 times the salary, depending on certain variables. So, if you pay someone a salary of $35,000, your actual costs likely will range from $43,750 to $49,000. Some added employment costs are mandatory, while others are a little harder to pin down. Fortunately, there may be tax savings to offset some of the costs.

Mandatory added costs of an employee

Hiring an employee means considerable payroll tax costs, including:

• Employer share of FICA (7.65% on compensation up to the annual wage base, which is $132,900 in 2019, plus 1.45% on compensation over the annual wage base).
• Federal unemployment tax (FUTA) of $42 per employee. The FUTA tax rate is 6%, but most employers can take a FUTA credit of 5.4%, resulting in a mere 0.6%.
• State unemployment tax, which varies with your state and your claims experience (the more claims made by former employees for unemployment benefits, the higher your state unemployment tax rate will be).

You can learn more about these costs from the IRS and your state revenue department.

You also need to address insurance coverage for your employees. This includes:

• Workers’ compensation. Costs vary from state to state.
• Other insurance that may be needed for the work performed. For example, if you have a professional firm, you may want or be required to pay for professional liability coverage. Similarly, you may need to have a bond, a type of insurance, for an employee to protect a third party (your customer). For example, a bond may be needed for employees who clean homes so that homeowners’ valuables are protected from employees’ damage or theft.

[Surf and Dune]

Sort of tax related if you live in California. My dad recently became a wholesale car dealer. The total cost of the school, test, license and insurance was around $1200. As a wholesale dealer, he can buy a car, doesn't have to pay sales tax, registration, or smog and you can drive said car that is part of your inventory. Downside is that you cannot sell to a private party, must be a dealer. That said, when the time comes there are plenty of dealers that would handle a sale for a relatively small charge. So do the math. Lets say your fortunate enough to buy a $150,000 luxury / exotic car, you're gonna add another $15,000 to the price plus registration each year after...

[MWB]

20 hours ago, John@Outfront said:

I had someone suggest my company should buy my truck and rent it to me as well as my house.  any input would be nice

also exposure concerns

 

share your experiences good and bad

Ask your Tax guy, He knows the actual laws and your situation.  If he doesn't know, then get a new tax guy.

[Rockwood]

1 hour ago, Surf and Dune said:

Sort of tax related if you live in California. My dad recently became a wholesale car dealer. The total cost of the school, test, license and insurance was around $1200. As a wholesale dealer, he can buy a car, doesn't have to pay sales tax, registration, or smog and you can drive said car that is part of your inventory. Downside is that you cannot sell to a private party, must be a dealer. That said, when the time comes there are plenty of dealers that would handle a sale for a relatively small charge. So do the math. Lets say your fortunate enough to buy a $150,000 luxury / exotic car, you're gonna add another $15,000 to the price plus registration each year after...

$1200/year thereafter....?

Hmmm....

[John@Outfront]

20 minutes ago, MWB said:

Ask your Tax guy, He knows the actual laws and your situation.  If he doesn't know, then get a new tax guy.

hes the one who suggested it but i wanted to throw it out there, maybe there was some more input

[ChEFF]

I purchase all the equipment......... forklifts / trailers / trucks / welders / generators / warehouse etc......... The company leases it all from me. Yes, the company has had to lease the motorhome and trailer from me on numerous occasions for jobs out of the area. And the company has a lot of Generators. We need to run power on job sites. Extreme Power (wink wink) I take a salary less than $24k a year for Social Security reasons. Want to make sure and have my allotted amount paid in so when I decide to collect it. To offset the rental income I purchase more equipment. Hence the Massive Garage in the Dream Home Build. Yes, the company will lease some storage space. My CPA is on my side. Let's Go Brandon. Peace 

[etdust]

21 hours ago, John@Outfront said:

I had someone suggest my company should buy my truck and rent it to me as well as my house.  any input would be nice

also exposure concerns

 

share your experiences good and bad

1.  Truck - Company owns the truck and leases it to you personally -   Wouldn't do it that way, if it were me I'd track mileage and just have the Company "reimburse" you for mileage driven on behalf of the business.  Then its a reimbursement, which isn't taxable to you personally, and is still a deduction for the Company.

 

2. House - Company owns the house and leases it to you personally -   I personally don't like mixing a residence into an operating business.  If the you know what hit the fan and someone sued the Company for everything it owns then your house would be up for grabs since the Company owned it.

 

 

My personal favorites for tax savings are these:

 

1. Put in a 401k/retirement plan of some sort --   This is the only tax deduction where you keep the cash, albeit you can't touch it for awhile, but you have the money and get a tax deduction.  Theoretically you are getting the deduction now while you're earning a ton, thus higher tax bracket, then when you take it out later in retirement you'll be earning less and then in a lower tax bracket and so you make the tax hedge there as well.

 

2. Buy the building you're Company operates out of and lease it back to the Company -- This allows you to get money out of the Company via rents to you since you own the building.  Then you also get the depreciation deduction against the rents paid to you from the Company.  Lastly this allows you another retirement income when/if you ever sold the Company and were able to continue leasing the building to the new owners.

 

3.  Congress has let loose a ton of tax credits the last 3 years.  Sifting through these is worth the time as you qualify for these sometimes and don't even know it.  Particularly the engine builders I'd assume you'd qualify for the research and development tax credits since you guys seem to be constantly innovating your builds/designs of how you guys do things.  There are alot of others as well that folks qualify for that based on the name of the credits most don't think they would.  Definitely worth spending time with your tax guys in this area.

 

One caveat on these:  Everyone's tax situation is pretty unique so this is all generalized stuff, so no guarantees, etc blah blah blah 

Edited May 17 by etdust

[Rockwood]

43 minutes ago, etdust said:

1.  Truck - Company owns the truck and leases it to you personally -   Wouldn't do it that way, if it were me I'd track mileage and just have the Company "reimburse" you for mileage driven on behalf of the business.  Then its a reimbursement, which isn't taxable to you personally, and is still a deduction for the Company.

 

2. House - Company owns the house and leases it to you personally -   I personally don't like mixing a residence into an operating business.  If the you know what hit the fan and someone sued the Company for everything it owns then your house would be up for grabs since the Company owned it.

 

 

My personal favorites for tax savings are these:

 

1. Put in a 401k/retirement plan of some sort --   This is the only tax deduction where you keep the cash, albeit you can't touch it for awhile, but you have the money and get a tax deduction.  Theoretically you are getting the deduction now while you're earning a ton, thus higher tax bracket, then when you take it out later in retirement you'll be earning less and then in a lower tax bracket and so you make the tax hedge there as well.

 

2. Buy the building you're Company operates out of and lease it back to the Company -- This allows you to get money out of the Company via rents to you since you own the building.  Then you also get the depreciation deduction against the rents paid to you from the Company.  Lastly this allows you another retirement income when/if you ever sold the Company and were able to continue leasing the building to the new owners.

 

3.  Congress has let loose a ton of tax credits the last 3 years.  Sifting through these is worth the time as you qualify for these sometimes and don't even know it.  Particularly the engine builders I'd assume you'd qualify for the research and development tax credits since you guys seem to be constantly innovating your builds/designs of how you guys do things.  There are alot of others as well that folks qualify for that based on the name of the credits most don't think they would.  Definitely worth spending time with your tax guys in this area.

 

One caveat on these:  Everyone's tax situation is pretty unique so this is all generalized stuff, so no guarantees, etc blah blah blah 

401k has to be a similar package offered to all employees (maybe with a "highly compensated employee" exception), no?

[John@Outfront]

48 minutes ago, etdust said:

1.  Truck - Company owns the truck and leases it to you personally -   Wouldn't do it that way, if it were me I'd track mileage and just have the Company "reimburse" you for mileage driven on behalf of the business.  Then its a reimbursement, which isn't taxable to you personally, and is still a deduction for the Company.

 

2. House - Company owns the house and leases it to you personally -   I personally don't like mixing a residence into an operating business.  If the you know what hit the fan and someone sued the Company for everything it owns then your house would be up for grabs since the Company owned it.

 

 

My personal favorites for tax savings are these:

 

1. Put in a 401k/retirement plan of some sort --   This is the only tax deduction where you keep the cash, albeit you can't touch it for awhile, but you have the money and get a tax deduction.  Theoretically you are getting the deduction now while you're earning a ton, thus higher tax bracket, then when you take it out later in retirement you'll be earning less and then in a lower tax bracket and so you make the tax hedge there as well.

 

2. Buy the building you're Company operates out of and lease it back to the Company -- This allows you to get money out of the Company via rents to you since you own the building.  Then you also get the depreciation deduction against the rents paid to you from the Company.  Lastly this allows you another retirement income when/if you ever sold the Company and were able to continue leasing the building to the new owners.

 

3.  Congress has let loose a ton of tax credits the last 3 years.  Sifting through these is worth the time as you qualify for these sometimes and don't even know it.  Particularly the engine builders I'd assume you'd qualify for the research and development tax credits since you guys seem to be constantly innovating your builds/designs of how you guys do things.  There are alot of others as well that folks qualify for that based on the name of the credits most don't think they would.  Definitely worth spending time with your tax guys in this area.

 

One caveat on these:  Everyone's tax situation is pretty unique so this is all generalized stuff, so no guarantees, etc blah blah blah 

regarding #1, my original question---thats what i thought

regarding #2 done and been doing that. it is great

regarding #3 good ideas

[etdust]

22 minutes ago, Rockwood said:

401k has to be a similar package offered to all employees (maybe with a "highly compensated employee" exception), no?

Correct.   However it can really depend on how the plan is designed.  You can put in a "safe harbor" plan where it allows the highly comp'd to max out whether or not the participating employees are putting much in.  It just has some carved outs, etc for those but its a good option to avoid the top heavy testing, etc that traditional 401k plans require.

 

I really like profit sharing plans that get stacked on top of 401k plans cause it allows business owners to really get a big deduction when they have big years, but doesn't keep them on the hook in years that aren't as stellar.  Typically the owners have to give their employees money too, but they are typically able to take the lion's share for themselves because their salaries are typically larger so it makes sense dollars and cents wise, particularly for taxes.

Edited May 17 by etdust

[Rockwood]

Oh yeah: don't forget to keep a logbook for vehicle mileage for the eventual audit (ask me how I know).  There's smart phone software you can use as well.

Edited May 17 by Rockwood