Posted by Carol on March 18, 1999 at 06:15:45:
Laure, wasn’t it Learned Hand who was being quoted at the convention about taxes? ie that one has a solemn dutty to pay as little as legally possible?
If it was good enough for Learned, it’s good enough for me.
BTW, keep this discussion going - I, for one, am right there behind you in the REI vs the CPA ( and ATTY) battle… I need all the ammo I can get.
Carol
Incorporating cont’d. - Posted by Laure
Posted by Laure on March 18, 1999 at 03:30:07:
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. He also said that opening another C must have different business purposes to pass an audit. 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. 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??
Couldn’t one corporation be for bank “A” funding, another be for “private investors” and another be for another source of funding? 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? He says NO !
Ok all you “players”, give the old gal a hand here. I see the bennefits, but I have a husband to convince too. A side bennefit is also contributing to the 401k and investing totally tax free ! Awesome, says me !
Laure 
Re: Incorporating cont’d. - Posted by MilNC
Posted by MilNC on March 18, 1999 at 17:42:48:
I am following this conversation with great interest.
Please for the sake of all, if it’s not too much trouble, dispense with insider lingo and spell it out for the rest of us. This is a great thread, and I have a lot to learn. I appreciate the posts, but would appreciate less use of jargon.
This is an important topic, and I hope the thread continues.
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.”
Huh?
“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.
John Hyre
Re: Incorporating cont’d. - Posted by JHyre in Ohio
Posted by JHyre in Ohio on March 18, 1999 at 05:59:40:
Laure,
I’ll make a more detailed post later today when I have time. Let me say this- he’s a typical tax attorney. He understands the tax law, does not want to be sued and is therefore very conservative and doesn’t understand numbers, particularly time value of money. Typical. We’ll talk some sense into him. Multiple corps do need a business purpose, as we discussed the other day. BFD- we’ll find business purpose. We also need to get around “related entity” rules. That’s fairly easy even for the creativity-challenged. Post to ya later, gotta run,
John Hyre
Re: Incorporating cont’d. - Posted by Laure
Posted by Laure on March 18, 1999 at 03:31:51:
Husband’s opinion is that 1) you Must pay taxes, 2) you Must die.
hehehe… I’m still arguing point #2.
Laure