Posted by JHyre in Ohio on May 03, 2000 at 10:07:20:
Hi Jim:
One clarification: Perks that are considered “earned income” (e.g.- vacation flights on the corporate jet) are subject to federal payroll tax.
John Hyre
How do all you C-Corp holders pull money out of the corp? - Posted by Tom Nagle PA
Posted by Tom Nagle PA on May 02, 2000 at 18:56:49:
Hi folks-
Last year I incorporated and have since done 6 flips in my C-Corp. I didn’t pull any cash out of the corp last year, and today I started talking with my accountant about pulling money out this year. She said that I have two options: pull a salary or pay a dividend to myself. I was just curious how others in the group were doing it.
Happy Hunting,
Tom Nagle
Allentown, PA
Re: How do all you C-Corp holders pull money out of the corp? - Posted by Bud Branstetter
Posted by Bud Branstetter on May 03, 2000 at 10:00:41:
Tom,
Be sure you are reimbursing yourself for all the expenses. Your corporation sends you to all those seminars, buys your lunches, gas at the tax rate, health insurance rembursement etc. Practically anything you can think of that you spent to earn that income.
The ratio of 1/3 salary to 2/3 dividends seems to satisfy the IRS on distribution.
Re: How do all you C-Corp holders pull money out of the corp? - Posted by Justin-IL
Posted by Justin-IL on May 02, 2000 at 21:53:12:
You could also make an interest free loan from the corp to yourself. You don’t have to pay taxes on borrowed money. You could also draw up a line of credit between you and your corp, and get money out whenever you need it.
Take care,
Justin Lee
Re: How do all you C-Corp holders pull money out of the corp? - Posted by Ed Copp (OH)
Posted by Ed Copp (OH) on May 02, 2000 at 21:12:05:
Tom,
Review your corp. expenses. Be sure that you have all the perks that you can get, in before tax dollars. Things like company car, medical reimbersment plan, per deim when the corp makes you travel, education expenses etc. Read the IRS publications, and be agressive. Then look at a dividend rather than a salary, because of social security witholdings that may be required from salary…ED
Re: How do all you C-Corp holders pull money out of the corp? - Posted by JHyre in Ohio
Posted by JHyre in Ohio on May 03, 2000 at 10:09:17:
The Baze is right. Loan needs to be BONA FIDE and DOCUMENTED- interest, note, payments, the whole nine yards. Otherwise the IRS will deem the loan to be a dividend…and tax it.
John Hyre
Re: How do all you C-Corp holders pull money out of the corp? - Posted by The Baze
Posted by The Baze on May 03, 2000 at 08:27:18:
You have to be careful when doing something like this. The IRS looks closely at loans to shareholders, looking for things like a debt instrument w/ a stated interest rate, whether there is collateral for the loan, the purpose of the loan, etc. If they feel that the loan is an obvious attempt to avoid tax (which in many cases it is) then they reclass it as a constructive dividend. Something to think about.
Tom Bazley
Re: How do all you C-Corp holders pull money out of the corp? - Posted by JPiper
Posted by JPiper on May 02, 2000 at 21:56:12:
Just thought I’d mention that although a dividend is not subject to self-employment tax…neither is it a corporate expense.
The implication therefore is that earnings paid out in dividends is taxed first at the corporate level (15% minimum) and then taxed later on the personal level. Salary on the other hand is deductible at the corporate level (no 15% tax)…but salary is taxed at the personal level plus social security tax is paid as well.
I can’t see a particular advantage of one over the other.
JPiper