by Jack Miller
Once an investors’ income passes $150,000, he can no longer deduct his current tax losses from anything other than passive income; but a corporation can.
A corporation is not bound by the restrictions on accounting losses that an individual is. You could always put property into a corporation, but you’d face the prospect of being taxed twice when you tried to get it out. Enter the split purchase wherein you and your corporation put up money to buy a house. It owns the house for the first 10 years, and you own it for the rest of the time. The respective price you and it paid for the house would have to reflect the fact that it would own the house first, but for a limited time. Conversely, you’d have to wait ten years before you’d be the owner, but have to put up the money today.
An actuary could figure out who paid what, or you could buy “Number Cruncher” software and let it do it for you based upon various tax tables that apply.
Let’s look at the benefits of buying a fixer upper, overhauling it, renting it out for 15 years and selling it. First, this is a great way to get money out of a cash rich corporation. It can use the property itself, or rent it out. In any case, it will be able to recover the costs of fix up during its ten years of ownership.
Even though it buys assets that would normally be written off though depreciation according to various guidelines that could run out to 39 years, when they revert to you at the end of 10 years, it can deduct all remaining un-depreciated basis at that time. So, your corporation can arrange its affairs to make a huge profit in the tenth year and offset this with the last years amortization write off.
Now, here it sits with all this tax free cash, what does it do with it? It pays it into corporate pension plan set up for its employees, who probably consist of your self, your spouse, and your kids. Later on, they can roll this over into IRAs if they so choose. In the meantime, the corporation can fund a startling array of fringe benefits which can effectively make many of your personal expenses deductible to the corporation.
One final little corporate gem: After you reach age 55 or so, the corporation can begin to put almost $200,000 a year into your pension plan tax free to you, and deductible to it. So how does it make all that money? Step 1: You give some of your houses to the corporation. It sells them for a profit, then it takes the sale proceeds and puts them into your pension plan. You don’t start paying tax on your pension plan until you start taking the money out. How sweet it is . . .
If you’re paying too much in the way of taxes, ask yourself why you couldn’t begin learning more about how to do things to reduce them? Or are you now? Let me know.
