I’m baaack - Posted by JHyre in Ohio
Posted by JHyre in Ohio on March 18, 1999 at 11:40:35:
“Spent 1 1/2 hours with Tax attorney today… argh… WHO INSISTS that if we run the numbers, there is absolutely NO advantage to a C corp over an S corp.”
Simple answer- he’s WRONG. Dead Wrong. I sent you my spreadsheet. Hopefully I’ll finish the improved “for dummies/tax attorneys” version by the end of next week. Ya can’t argue with da numbers.
“He also said that opening another C must have different business purposes to pass an audit.”
True. If he has any imagination, he can find BP.
“His other BIG concern is, how do you get your property or cash “out” of the Corporation at the end without additional tax? My point is that it compounds at a lesser tax year after year, therefore growing much larger than at a higher tax rate.”
My spreadsheet proves this WITH the pessimistic handicap assumption that ALL proceeds are eventually dividended out…which ain’t gonna happen if tax boy knows how to use working-condition fringes, etc.
“Am I correct, you can change your election between S and C during the life of your corp? I thought I understood, that you can elect to change from a C to an S once a year or back the other way?? So, towards the end, change to an S corp??”
You are correct, although changing the thing with frequency is an audit red flag. If you change from C to S, you have to hold the properties for 10 years OR the properties are taxed on “built-in” appreciation at C-corp rates when distributed. So changing is not an immediate panacea, but see your present value argument.
“Couldn’t one corporation be for bank “A” funding, another be for “private investors” and another be for another source of funding?”
I intend to do something similar. This is a case by case determination that has to be made on ALL the relevant facts & circumstances. Sounds like Nervous Nelly may not approve under any circumstances- he’s covering HIMSELF against being sued by you if things go south. The price for that CYA is conservative and hence expensive tax position on your part.
“He also said, if Principals changed between the different corporations, it would be reason enough to justify a different corporation.”
“Would it be prudent, concidering the cost of preparing additional corporate tax returns, to have multiple corporations? thus keeping the tax rate lower in the 15% tax bracket?”
Depends on how much you are saving! Better yet, take H&R Block course (they are generally quite good for compliance issues & cheap) & learn how to do your own. For little corps (below $1 million) it’s really not too hard. Then pay a CPA to review it.
“He says NO !”
Predictable, see CYA.
“A side bennefit is also contributing to the 401k and investing totally tax free ! Awesome, says me !”
One of the perks of corporate citizenry, along some others.
Remember, you do not have to convince HIM of anything. That’s NOT what you are paying him for! Once YOU are persuaded, the rest (corporate formation, filings, etc.) follow. It is his job to come up with solutions to your problems or say that they cannot be solved- I DO NOT think you are in the latter position.
Oops, the lunch bell rang, gotta go. Good luck & call if the first (admittedly primitive) spreadsheet did not arrive.