Posted by GL(ON) on July 16, 2002 at 21:30:10:
She is highly trained, very experienced and very competent if you must know.
Some of the things you mention are not available here in Canada.
But that begs the question: If you can reduce your income tax to zero without incorporating, what tax advantage is there to incorporating?
Ex CPA said incorporating could be illegal?? - Posted by mohito
Posted by mohito on July 16, 2002 at 14:42:24:
I spoke to an ex-CPA (who is now a consultant). He said it is not always legal to just incorporate to avoid taxes. You need to establish that you are working full time in this business in order to make it a legal business. His concern was that the IRS woulsn’t just allow anyone with a rental property to just incorporate and get tax benefits. He thought there was some requirements on showing that you plan on having this as a fully established business and not just your investments.
He said that if you have rental property and incorporate to get benefits, the IRS can come after you and claim that it isn’t a real business.
Anyone come accross this before?
Re: Ex CPA said incorporating could be illegal?? - Posted by Joe Clifford
Posted by Joe Clifford on July 18, 2002 at 24:52:05:
There are an awful lot of good reasons to incorporate – the most important being shielding your own personal assets from the lawyers.
Ever hear those stories about the slumlord who gets sued by a tenant and loses everything including their own house, etc.? They’re true. All it takes is one “good” lawyer, and everything you personally own is fair game…
I’m no lawyer but I have “friends” (at least as long as I’m buying) who are and anyone who does business as a sole proprietor, partnership, LLP (as the managing partner), LLC (as the GM/managing partner) or anything less than a full S or C corp is an idiot. The costs aren’t all that bad, the benefits are immense and the “rules” aren’t all that hard to follow…
It may make sense for you to set up a LLP or LLC to hold a specific property or properties but the general/responsible partner should always be a corp.
Get a copy of “Own your own corporation” from the Rich Dad Poor Dad folks and you’ll understand (at least on the surface) the way to protect what’s yours.
If I were in for heart surgery… - Posted by JT-IN
Posted by JT-IN on July 16, 2002 at 22:22:05:
I would not want an X-Doctor doing the procedure…
But you be the judge of the advice you received.
JT-IN
Re: Ex CPA said incorporating could be illegal?? - Posted by JHyre in Ohio
Posted by JHyre in Ohio on July 16, 2002 at 20:26:40:
PS: My father makes a drink called a mohito…the mint and lime conceal the taste of rum until its too late…mmmmmmm!
John Hyre
Re: Ex CPA said incorporating could be illegal?? - Posted by JHyre in Ohio
Posted by JHyre in Ohio on July 16, 2002 at 20:25:12:
I wouldn’t lose any sleep over it. The CPA is blowing certain doctrines established by the courts way out of proportion. If you have an activity designed to make a profit, and you incorporate it, the IRS must respect the corporate form in all but the rarest of circumstances. Get a new tax advisor, this guy probably wets the bed atter watching “The Untouchables”. And think carefully about incorporating an RE business- there are benefits in some cases, and serious pitfalls in others.
John Hyre
What tax benefits? - Posted by GL(ON)
Posted by GL(ON) on July 16, 2002 at 17:10:18:
My accountant told me if I incorporated I would wind up paying MORE taxes.
I understand the same thing goes in the US.
Besides who pays taxes anyway? If you handle your investments right, real estate will shelter all your income.
Re: Ex CPA said incorporating could be illegal?? - Posted by CPA MS in Taxes
Posted by CPA MS in Taxes on July 16, 2002 at 16:05:16:
If that’s his advice, I’d look for a new CPA…
Keep on investing…
Ex CPA said incorporating could be illegal?? - Posted by jeff
Posted by jeff on July 16, 2002 at 16:04:53:
the tax benefit isnt necessarily the reason yuo want to incorporate. it had nothing to do with my decision, i wanted the protection of my personal assets. whether i get benefits or not, i still intend on keeping my company gonig to keep a tenant from suing me and taknig my primary residence and putting me in that coradboard box down by the corner.
the tax benefits may be the reason some people do it, but there are more important reasons than that in my eyes. they can keep their tax break if i get to keep my home, isnt that worth more than a grand or so on your taxes?
Re: Ex CPA said incorporating could be illegal?? - Posted by Nate(DC)
Posted by Nate(DC) on July 16, 2002 at 15:44:22:
If all the business does is own a rental property, it could probably be classified as a personal holding company, and it does not avoid any taxes. He was correct on that point.
NT
Re: Ex CPA said incorporating could be illegal?? - Posted by Carey_PA
Posted by Carey_PA on July 16, 2002 at 22:29:44:
John,
I’m curious to hear your opinions on the benefits and pitfalls of incorporating a real estate business…when is it beneficial and when is it a pitfall??
Thanks in advance,
CAREY
Re: What tax benefits? - Posted by Craig (IL)
Posted by Craig (IL) on July 16, 2002 at 21:25:50:
your accountant (who from your post he or she sounds like an idiot) is probably talkign about C Corporations. If all one does is establsih a C corporation, thre a mighty good chance that that person weold pay “double taxation” since the corporation is taxed first and then you are taxes again as an individual.
One can, however, file for “S status” with the IRS. This creates a “flow through” entity with the IRS and avoids this pitfall. LLC’s also avoid this problem. There’s lots of ways.