Tax Strategies

[dropbox247]

This question is directed to you tax strategists and seasoned entrepreneurs. First, let me explain my situation.

I currently have ownership in multiple LLCs and one general partnership. Income flows from these entities directly to me, at which point I pay income tax and self-employment tax. I've read several books on tax strategies and such. Equipped with this knowledge, I want to maximize my tax savings and minimize my liability.

My best option, as I see it, would be to incorporate a holding company, elect to be taxed as an S-corp, switch my general partnership to an LLC, and put the new LLC along with my other LLCs underneath the holding company.

ALL income would flow through to the holding company. The holding company will pay me a salary up to $50,000/year for managing these assets and pass the rest of the income to me as a distribution. The tax savings are realized in these ways (a) paying myself a salary is a write-off for the holding company, as is a portion of the FICA taxes they match for me, so I only pay income tax and my portion of the FICA taxes. (b) the distributions are not subject to self-employment tax and will be taxed at my income tax bracket which will be low initially. (c) I will be able to write a lot more things off that LLCs cannot write off.

When my companies are creating enough wealth for the holding company to take advantage of the C-corp tax classification, my holding company will switch to C-corp tax election status permanently. The distributions will turn into dividends that will be taxed at the portfolio income tax levels (substantially lower than what the distributions are taxed at now) and I will be able to write a LOT more expenses off. I will also be able to keep money within the holding company for investment purposes and only pay taxes at the corporate level, avoiding double taxation.

My question is: Does this sound like the best strategy? If not, what would you suggest?

Please, no "You should talk to a CPA or tax attorney" answers. If you don't have an educated answer, please don't make a post. If I wanted a CPA or tax attorney's answer, I would have asked one. Their answer will come soon enough when I hire them to enact all of this for me.

I want your answer. Thanks in advance! Please excuse the sloppy wording and terrible flowing of thought throughout this post, I'm half awake but too anxious to wait 'till the morning.

[dropbox247]

***bump***

[JLeezer]

I'm not a CPA or tax strategist, but my dad was a CPA and has been selling tax law material for more than 3 decades. Needless to say, I've received quite a few tax books over the years (one of my favorite types of gifts).

From what I've read, I'm not sure of the differences your speaking of between LLCs, S-Corps, and C-Corps in regards to tax deductible expenses. Operating any business, whether as a sole proprietor or any legal entity established under law, provides you the ability to follow the deduction laws established in the Tax Code.

I have to re-read the rest of your post before I comment on it, though. I'll have to do this later as I need to get back to testing our latest software. I'll try to do it by lunch.

Glad to see someone else that looks this deep into the tax code!!!

[dropbox247]

I appreciate your time and look forward to your response. There are tax deductions that ONLY C-corps can take, such as tax-free (fringe) benefits. Things like medical reimbursement plans, disability insurance, education reimbursement plans, etc. There are a LOT more of them. The catch is, you have to make these plans and benefits available to ALL of your employees. Fortunately, I will be the only employee of the holding company. The LLCs will have their own limited benefit plans for my employees (such as health insurance).

[BusinessAdviser]

"(c) I will be able to write a lot more things off that LLCs cannot write off."

How do you figure?

[dropbox247]

"(c) I will be able to write a lot more things off that LLCs cannot write off."

How do you figure?

Refer to my earlier post:

"There are tax deductions that ONLY C-corps can take, such as tax-free (fringe) benefits. Things like medical reimbursement plans, disability insurance, education reimbursement plans, etc."

No other business entity can write these 100% off.

[BusinessAdviser]

Refer to my earlier post:



No other business entity can write these 100% off.

Do you mind citing the source of your information? I was unaware of this, so I would like to read more about it. Thank you.

[dropbox247]

Do you mind citing the source of your information? I was unaware of this, so I would like to read more about it. Thank you.

Next time you are at a bookstore, look up Loopholes of the Rich: How the Rich Legally Make More Money & Pay Less Tax by Diane Kennedy, CPA & tax strategist. Its a national bestseller on the subject. There is a LOT of great information in that book. If I had to cite my statement, that would be it.

I've had a very hard time researching online about this. The rich don't like sharing their secrets and high level CPA's don't like giving advanced tax information out for free. So, I finally broke down and bought some books and started reading summaries of the tax code.

[BATISTAinc]

anyways im looking to go into business and have a hold on a name im using for an LLC . Now I wasn't looking forward to this part of a new business venture and thats having to deal with taxes. Really I know nothing when it comes to taxes and how much I have to pay and how much I can keep and how do I get around that so these post are kind of opening my eyes a lil bit and making me realize that I have to do a little reading. thanks guys

[pboychuk]

I have an LLC, holding company, it is not a partnership. I was doing some research and discovered there is some way you can apply to make all income of the LLC passive, thus it would pass straight to me w/o having to pay an FICA, Basically it is an LLC that pays taxes as a sole proprietorship. I really dont want to pay witholding b/c its basically throwing money away. I am asking my accountant how all this works, so hopefully its as good as it sounds.

[dropbox247]

That sounds interesting, but a sole proprietorship pays self-employment tax and income tax. However, you can elect to have your LLC taxed as an s-corp, allowing only part of the income to be taxed at the FICA level and the rest pass to you as a distribution only subject to income tax. I don't think the distribution is considered passive income though, unfortunately, so it would be subject to the earned income tax and not the passive income tax.

[JLeezer]

Next time you are at a bookstore, look up Loopholes of the Rich: How the Rich Legally Make More Money & Pay Less Tax by Diane Kennedy, CPA & tax strategist. Its a national bestseller on the subject. There is a LOT of great information in that book. If I had to cite my statement, that would be it.

I've had a very hard time researching online about this. The rich don't like sharing their secrets and high level CPA's don't like giving advanced tax information out for free. So, I finally broke down and bought some books and started reading summaries of the tax code.

I too have read that book. I found it to be excellent. However, I would certainly be sure to bring an experienced tax strategist into the equation prior to executing any strategies found in the book. The strategies are sort of vague, but do provide perfect starting points to begin communicating with (and thus fully utilizing the services of) your tax strategist.

If you happen upon any other books with a similar type of content, please do PM me the titles as I'd be interested in reading more. Thanks.

[dropbox247]

I too have read that book. I found it to be excellent. However, I would certainly be sure to bring an experienced tax strategist into the equation prior to executing any strategies found in the book. The strategies are sort of vague, but do provide perfect starting points to begin communicating with (and thus fully utilizing the services of) your tax strategist.

If you happen upon any other books with a similar type of content, please do PM me the titles as I'd be interested in reading more. Thanks.

I completely agree. If I find anything of interest, I'll PM you.

[dropbox247]

anyways im looking to go into business and have a hold on a name im using for an LLC . Now I wasn't looking forward to this part of a new business venture and thats having to deal with taxes. Really I know nothing when it comes to taxes and how much I have to pay and how much I can keep and how do I get around that so these post are kind of opening my eyes a lil bit and making me realize that I have to do a little reading. thanks guys

No problem buddy.

[HRAMatt]

Hey, I heard you guys talking about different tax deductions. I happen to specialize in what's known as an HRA or health reimbursement arrangement. This plan allows qualified small business owners and self employed individuals to deduct up to 100% of their families health care expenses through their busines, right down to over the counter medications. This is something that many many many successful business owners are doing to help their bottom lines. Let me know if you're interested in learning more.