- TAX PLANNING At this point with any extended return, the only option left to reduce any taxable income is to establish or fund a SEP. However, it is disallowed when an owner owns more than one company and has 401K in another company that they are paid a w2 salary.
If you need to establish a pension plan, please contact a retirement advisor.
- Dividends/distributions from a company generate a 1099DIV for owner. Distributions are money drawn out of the company, not personal expenses. If personal expenses are for uniforms or health insurance, a fringe benefit plan should be established which must benefit all employees.
If the shareholder incurs any expenses, the company can reimburse through an accountable plan.
I have repeatedly explained that the money in a company does not belong to an owner. The company must be considered a separate entity. It is how the government views it.
Also, any officer loan (owing the company) will be reclassified as a distribution
These dividends generate a 3.8% net investment income tax with no exceptions.
- Again, as in prior years, there is interest in the officer’s salary amount. In a C Corp, a salary that is too large is not permitted and in a S Corp a salary that is too low is not permitted. With the C Corp it is assumed that too large of a salary is an attempt to avoid the Accumulated Retained Earnings tax.
The rule of thumb is that any accumulated retained earnings over $250K needs to be documented in Annual Minutes as to why it is being held. There are certain allowable reasons.
- TAX PLANNING It is recommended that any charitable contributions should be prepaid as next year there will be a 1% floor deduction. Remember there is a 10% cap of net income
- We were advised that any audits will require all documents from any category that is chosen. Please retain records and establish files.
- Related parties – a C Corp and S Corp owned by same shareholders – and using services of one of the corporations (think consulting, etc.) can be considered attempting to only have one taxed.
The income of one company and the expense to other company must be received and paid in the same year. There should also be a written agreement, invoices, organization documents and list of detailed services performed. This has been discussed for several years now, but now there are tax law cases that are ruling in favor of the IRS.
- I am assuming due to the increased amount of residential housing communities being built there is now information being provided about the filing of their taxes along with homeowner’s association taxation. These are not new rules just newly being included in continuing education classes. A brief synopsis of the rules are as follows:
Form 1120 or 1120H are used and can be changed from year-to-year without making any election
60% of revenues must come from HOA fees to file the 1120H along with 90% of expenses. Any sale of land, as an example, that would skew this percentage would then be filed on Form 1120
Amendments are not allowed; however, private letter rulings have been in favor of doing so (they come at a substantial cost)
Finally, I also attended a Depreciation webinar today. This will be discussed with clients as needed.
If you have any questions, please give me a call.
Thank you