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Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29558
Experience:  Taxes, Immigration, Labor Relations
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I am a business owner, I have a c-corp I own the business

Customer Question

I am a business owner, I have a c-corp
I own the business property, my business pays me the monthly rent
To pay mortgage, the business pays for the property taxes and insurance, I typically takes 5000.00 dollar a month shareholder distribution, plus 3000.00 on payroll
My question is this, should I just pay myself the going rate for rent which would be anywhere from 15 to 17 thousand and stop taking the shareholder distribution
And lower my payroll to 1/2 of the 3000.00?
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.

As you aware - C-corporation and you as a physical person - are separate taxing entity - and that is regardless of relations between you and the corporation.
As you are en employee - and you have your employee business expenses - that might be the best if the corporation (your employer) will reimburse you your business expenses.
In order for such reimbursements to be deductible for the corporation and NOT reported as taxable wages - they must be paid under an accountable reimbursement plan.
That woudl be the most tax effective way to handle such situation.

Expert:  Lev replied 1 year ago.

In order to qualify as an accountable plan, your reimbursement or allowance arrangement must require that your employees meet all three of the following rules:
1. There must be a business connection to the expenditure. This means that the expense must be a deductible business expense incurred in connection with services performed as an employee. If not reimbursed by the employer, the expense would be deductible by the employee on his/her 1040 income tax return.
2. There must be "adequate" accounting by the recipient within a reasonable period of time. This means that your employees must verify the date, time, place, amount and the business purpose of the expenses. Receipts are required unless the reimbursement is made under a per Diem Plan.
3. Excess reimbursements or advances must be returned within a reasonable period of time. Reasonable depends upon facts and circumstances.

Customer: replied 1 year ago.
You said my employees,
Not sure about that, my main concern is what would be more beneficial for the corporation
As I do have to pay taxes for the corporation and myselfMy mortgage payment is 10 thousand and that is all the corporation pays me, should I raise the rent paid to myself and get rid of the shareholder distribution? it seems like either way I will get taxed, which is fine,
Expert:  Lev replied 1 year ago.

I meant - employees of C-corporation.
In your case - you are an employee and C-corporation is an employer.
That is regardless if C-corporation has other employees or not.
Regardless tax liability - you and C-corporation have pay separate tax tax liabilities.
You are responsible for your individual income tax - and file your own tax return.
C-corporation as a separate taxing entity pays corporate income tax and files corporate income tax return - form 1120.
In additional - because C-corporation has employees - it is responsible for employment taxes (partly paid by the corporation and partly withheld from wages) - and files employment tax returns.

If C-corporation sets an accountable reimbursement plan - that means - you provide a report for your employee business expenses - and the corporation will reimburse you - and that amount will NOT be reported as your wages - thus not taxable for you - but still may be deducted by C-corporation as business expenses.
If you want to use a different wrote - and have a rental contract between you and C-corporation - that is also possible.
In this case - you will report your rental income and will deduct rental expenses.

Rules for determination which expenses are deductible are essentially same as for reimbursements.
The corporation will deduct rental expenses - and you will report your rental income on your tax return. So - there will be additional reporting requirements.
But there will not be any difference if total tax liability.

If you charge higher rent - you personally will have taxable income. That would be only difference.