Hi & thanks for using our service. I'll do my best to give you a complete & accurate answer. Please ask me to clarify anything that is not clear.
If the timeshare organization will sell a timeshare to your corporation, sure your corporation can purchase it.
Tax deductions are quite another matter.
In fact, you can pretty much be assured that if you were audited, the IRS would treat the purchase as a dividend to you (to the extent your corporation has retained earnings).
It isn't an "ordinary & necessary" business expense so that's the basic test it fails.
Conducting a corporate annual meeting there doesn't make anything deductible.
Hi Stephen, great, thank you. I am a new small business owner, and also don't want to make any mistakes with what my entity is allowed to do. please clarify this section of your response..."the IRS would treat the purchase as a dividend to you (to the extent your corporation has retained earnings)". How would this be treated on my entity's tax returns? Should I pay rent to the corporation when I use it - at FMV?
I'm not sure exactly what you are referring to as "this". The botXXXXX XXXXXne is you shouldn't do it. If you were going to pay your corporation rent at the FMV, you might as well just rent it or purchase it personally. What type of business are you operating with your corporation & why aren't you electing S-Corp status?
Do you mean how would a dividend be treated on your corporation?
I am in a trading business - and also nutrition consulting. Yes - I mean how would a dividend be treated on my corporation?
The dividend would reduce retained earnings; it is not deductible by the corporation, but it is income to you.
ah....I see. so - do not have a corporation buy real estate! ( not in this manner, anyhow).
If you didn't have retained earnings, it would simply be treated as additional compensation to you.
Now that's not the case at all. Why no S-Corp status?
Now should be No in sentence above.
so - as an example - I would (personally) be sent an 1099 at the end of the year from my entity - with $4,000 taxable income listed?
No, it would be just added to your payroll, salary and be subject to all the payroll taxes.
I do not recall why I did not select an S-Corp...I think that when I was setting up the entity - I may recall something about an S-Corp being less favorable in some way - I set up my corporation in 2007.In Massachusetts.
Dear Lord...goodness. I would not want that to happen!
Do you have a CPA that does your tax returns?
I do. Should I contact them?
I'm in MA; don't know of any reason why someone would advise you to do business as a C corporation.
All I can name are disadvantages;
The folk who advised me are in Phoenix, Arizona.
Advised you when you formed the corporation you mean?
Hasn't your CPA discussed S-Corp status with you?
Does your corporation pay corporate income taxes?
I formed the corporation through them. I did not realize there were disadvantages to having a corporation. No m- they only prepare my tax returns annually, for a set fee. I could pose the question, though. I have not had enough earnings yet to pay any real corporate taxes yet. I paid $121 for the first time, last year. I am purchasing equities, and consulting as a nutritionist.
If your corporation starts to make a profit, that profit can be taxed twice, once at the corporate level and once when you take the profit out; an S-Corp eliminates that possibility as there's only tax at the individual level.
What is the year end of your corporation?
wow - I did not know that. December 2013
OK, all S-Corps have to use the calendar year; I recommend that you consider talking to your CPA about making an S-Corp election; he has the corporate history, tax returns, balance sheets; there could be other reasons why it isn't smart to switch to S-Corp status now. When you say you are purchasing "equities" -- do you mean the corporation is doing that?
yes- trading equities. Actually - at this point - the corporation is just purchasing high dividend yield blue chip stocks, and developing a portfolio. trading as a business...and to develop the portfolio - the day job of being a consulting, contracted, nutritionist.
What is funding the purchase of the equities? The income from your consulting?
Yes - and both are listed in my articles of incorporation for my entity. eventually - the goal is to trade - and leave the nutrition consulting field altogether.
Think about this.............................
During the year you are working and using a portion of the income being generated to purchase assets (securities) which aren't deductible against your consulting income,,,,,,,,,,,so...........
at the end of the year you are going to have to pay taxes on 100% of your consulting income (including the money invested in the securities).................so.............
You'll have income tax to pay and no cash to pay it with, without liquidating securites.
The botXXXXX XXXXXne is that you really need to re-evaluate your business plan from a tax standpoint;
If you accumulate securities in a C-Corp, essentially by paying taxes at the corporate level, when you go to take the securities out of the corporation, or liquidate the corporation, you'll pay another income tax personally. So you're headed down the "double taxation" road; A C corporation is not the vehicle to accumulate assets.
I think you need to get some on hands tax advice - tax planning - before you get yourself boxed in tax wise; Possibly your tax preparers can do this for you (if they are CPAs & your not dealing with a brand new recruit).
Thank you so very much, Stephen. Should I look for a CPA that specializes in a certain branch of tax law? Also - as you can tell by my recent corporate tax status - I truly am a small business. I cannot put anyone ( or firm) on retainer.
I'll leave my contact information in case you want to reach me again.
possibly contact the SBA?
You don't need a CPA on a retainer.
You're only talking about a few hours of consulting time at the most.
You'll cost yourself far more without it. The SBA or SCORE have a lot of good ideas, but that's overkill for you right now; you don't want to get the bad news from your tax preparer after the fact; you need to understand where you are going tax wise up front; even though it is a few years late.
Any CPA can help you, this is real basic stuff;
Thank you so very much for your help, Stephen. I really appreciate it. I will take your advice and do just that.
I'm wondering why your current CPAs haven't discussed any of this with you?
If you need to contact me again with any tax or financial questions, you can just ask for "Steve G" at the beginning of your question. Again, please remember to rate my response. Bonuses, where you think they are warranted, and excellent ratings, are always most appreciated. Thanks again for using JustAnswer.com.You may get a short survey from the site; if it isn't too much trouble I would appreciate it if you would answer it; the survey results are used to rate our performance;
possibly because hey have only prpeaprd my taxes - and not provided any tax planning advice...(other than a couple of Nolo books when I first incorporated the entity). You were excellent, and I am sure that I will return. Thank you so much again!