share your tax saving strategies or pit falls

[ChEFF]

I purchase all the equipment......... forklifts / trailers / trucks / welders / generators / warehouse etc......... The company leases it all from me. Yes, the company has had to lease the motorhome and trailer from me on numerous occasions for jobs out of the area. And the company has a lot of Generators. We need to run power on job sites. Extreme Power (wink wink) I take a salary less than $24k a year for Social Security reasons. Want to make sure and have my allotted amount paid in so when I decide to collect it. To offset the rental income I purchase more equipment. Hence the Massive Garage in the Dream Home Build. Yes, the company will lease some storage space. My CPA is on my side. Let's Go Brandon. Peace 

 

[etdust]

I had someone suggest my company should buy my truck and rent it to me as well as my house.  any input would be nice

also exposure concerns

share your experiences good and bad

1.  Truck - Company owns the truck and leases it to you personally -   Wouldn't do it that way, if it were me I'd track mileage and just have the Company "reimburse" you for mileage driven on behalf of the business.  Then its a reimbursement, which isn't taxable to you personally, and is still a deduction for the Company.

2. House - Company owns the house and leases it to you personally -   I personally don't like mixing a residence into an operating business.  If the you know what hit the fan and someone sued the Company for everything it owns then your house would be up for grabs since the Company owned it.

My personal favorites for tax savings are these:

1. Put in a 401k/retirement plan of some sort --   This is the only tax deduction where you keep the cash, albeit you can't touch it for awhile, but you have the money and get a tax deduction.  Theoretically you are getting the deduction now while you're earning a ton, thus higher tax bracket, then when you take it out later in retirement you'll be earning less and then in a lower tax bracket and so you make the tax hedge there as well.

2. Buy the building you're Company operates out of and lease it back to the Company -- This allows you to get money out of the Company via rents to you since you own the building.  Then you also get the depreciation deduction against the rents paid to you from the Company.  Lastly this allows you another retirement income when/if you ever sold the Company and were able to continue leasing the building to the new owners.

3.  Congress has let loose a ton of tax credits the last 3 years.  Sifting through these is worth the time as you qualify for these sometimes and don't even know it.  Particularly the engine builders I'd assume you'd qualify for the research and development tax credits since you guys seem to be constantly innovating your builds/designs of how you guys do things.  There are alot of others as well that folks qualify for that based on the name of the credits most don't think they would.  Definitely worth spending time with your tax guys in this area.

One caveat on these:  Everyone's tax situation is pretty unique so this is all generalized stuff, so no guarantees, etc blah blah blah 

 

[Rockwood]

1.  Truck - Company owns the truck and leases it to you personally -   Wouldn't do it that way, if it were me I'd track mileage and just have the Company "reimburse" you for mileage driven on behalf of the business.  Then its a reimbursement, which isn't taxable to you personally, and is still a deduction for the Company.

2. House - Company owns the house and leases it to you personally -   I personally don't like mixing a residence into an operating business.  If the you know what hit the fan and someone sued the Company for everything it owns then your house would be up for grabs since the Company owned it.

My personal favorites for tax savings are these:

1. Put in a 401k/retirement plan of some sort --   This is the only tax deduction where you keep the cash, albeit you can't touch it for awhile, but you have the money and get a tax deduction.  Theoretically you are getting the deduction now while you're earning a ton, thus higher tax bracket, then when you take it out later in retirement you'll be earning less and then in a lower tax bracket and so you make the tax hedge there as well.

2. Buy the building you're Company operates out of and lease it back to the Company -- This allows you to get money out of the Company via rents to you since you own the building.  Then you also get the depreciation deduction against the rents paid to you from the Company.  Lastly this allows you another retirement income when/if you ever sold the Company and were able to continue leasing the building to the new owners.

3.  Congress has let loose a ton of tax credits the last 3 years.  Sifting through these is worth the time as you qualify for these sometimes and don't even know it.  Particularly the engine builders I'd assume you'd qualify for the research and development tax credits since you guys seem to be constantly innovating your builds/designs of how you guys do things.  There are alot of others as well that folks qualify for that based on the name of the credits most don't think they would.  Definitely worth spending time with your tax guys in this area.

One caveat on these:  Everyone's tax situation is pretty unique so this is all generalized stuff, so no guarantees, etc blah blah blah 

401k has to be a similar package offered to all employees (maybe with a "highly compensated employee" exception), no?

 

[John@Outfront]

1.  Truck - Company owns the truck and leases it to you personally -   Wouldn't do it that way, if it were me I'd track mileage and just have the Company "reimburse" you for mileage driven on behalf of the business.  Then its a reimbursement, which isn't taxable to you personally, and is still a deduction for the Company.

2. House - Company owns the house and leases it to you personally -   I personally don't like mixing a residence into an operating business.  If the you know what hit the fan and someone sued the Company for everything it owns then your house would be up for grabs since the Company owned it.

My personal favorites for tax savings are these:

1. Put in a 401k/retirement plan of some sort --   This is the only tax deduction where you keep the cash, albeit you can't touch it for awhile, but you have the money and get a tax deduction.  Theoretically you are getting the deduction now while you're earning a ton, thus higher tax bracket, then when you take it out later in retirement you'll be earning less and then in a lower tax bracket and so you make the tax hedge there as well.

2. Buy the building you're Company operates out of and lease it back to the Company -- This allows you to get money out of the Company via rents to you since you own the building.  Then you also get the depreciation deduction against the rents paid to you from the Company.  Lastly this allows you another retirement income when/if you ever sold the Company and were able to continue leasing the building to the new owners.

3.  Congress has let loose a ton of tax credits the last 3 years.  Sifting through these is worth the time as you qualify for these sometimes and don't even know it.  Particularly the engine builders I'd assume you'd qualify for the research and development tax credits since you guys seem to be constantly innovating your builds/designs of how you guys do things.  There are alot of others as well that folks qualify for that based on the name of the credits most don't think they would.  Definitely worth spending time with your tax guys in this area.

One caveat on these:  Everyone's tax situation is pretty unique so this is all generalized stuff, so no guarantees, etc blah blah blah 

regarding #1, my original question---thats what i thought

regarding #2 done and been doing that. it is great

regarding #3 good ideas

 

[etdust]

401k has to be a similar package offered to all employees (maybe with a "highly compensated employee" exception), no?

Correct.   However it can really depend on how the plan is designed.  You can put in a "safe harbor" plan where it allows the highly comp'd to max out whether or not the participating employees are putting much in.  It just has some carved outs, etc for those but its a good option to avoid the top heavy testing, etc that traditional 401k plans require.

I really like profit sharing plans that get stacked on top of 401k plans cause it allows business owners to really get a big deduction when they have big years, but doesn't keep them on the hook in years that aren't as stellar.  Typically the owners have to give their employees money too, but they are typically able to take the lion's share for themselves because their salaries are typically larger so it makes sense dollars and cents wise, particularly for taxes.

 

[Rockwood]

Oh yeah: don't forget to keep a logbook for vehicle mileage for the eventual audit (ask me how I know).  There's smart phone software you can use as well.

 

[Lord of the Dunes]

 What about the other costs you need to include when you have an employee? Workmans comp? 


How Much Does an Employee Cost You?



By Barbara Weltman on August 22, 2019
Category: Industry Word



When you think about adding a new employee to your payroll, determine what the actual financial cost of doing so means to your business.






When you think about adding a new employee to your payroll, determine what the actual financial cost of doing so means to your business. This includes the dollars and cents over and above the basic wage or salary you agree to pay. There’s a rule of thumb that the cost is typically 1.25 to 1.4 times the salary, depending on certain variables. So, if you pay someone a salary of $35,000, your actual costs likely will range from $43,750 to $49,000. Some added employment costs are mandatory, while others are a little harder to pin down. Fortunately, there may be tax savings to offset some of the costs.

Mandatory added costs of an employee

Hiring an employee means considerable payroll tax costs, including:

• Employer share of FICA (7.65% on compensation up to the annual wage base, which is $132,900 in 2019, plus 1.45% on compensation over the annual wage base).
  
• Federal unemployment tax (FUTA) of $42 per employee. The FUTA tax rate is 6%, but most employers can take a FUTA credit of 5.4%, resulting in a mere 0.6%.
  
• State unemployment tax, which varies with your state and your claims experience (the more claims made by former employees for unemployment benefits, the higher your state unemployment tax rate will be).
  

You can learn more about these costs from the IRS and your state revenue department.

You also need to address insurance coverage for your employees. This includes:

• Workers’ compensation. Costs vary from state to state.
  
• Other insurance that may be needed for the work performed. For example, if you have a professional firm, you may want or be required to pay for professional liability coverage. Similarly, you may need to have a bond, a type of insurance, for an employee to protect a third party (your customer). For example, a bond may be needed for employees who clean homes so that homeowners’ valuables are protected from employees’ damage or theft.
  

That's all great info. For the HR dept.

My friend didn't ask how to reduce his company's expenses. That wasn't his goal. He wanted to reduce his personal federal tax bill. I think he also liked the idea of putting some SS money into her SSA account, since she hadn't been employed for the previous 10 yrs.

 

[Surf and Dune]

That's all great info. For the HR dept.

My friend didn't ask how to reduce his company's expenses. That wasn't his goal. He wanted to reduce his personal federal tax bill. I think he also liked the idea of putting some SS money into her SSA account, since she hadn't been employed for the previous 10 yrs.

 No, your buddy wanted to save money, I doubt he cared which line item it came from. I'm not arguing that your advice wasn't wise, just saying his overall savings that you are stating are probably about $10,000 a year off which is substantial considering his overall income. 

 

[1newbie]

more of a pitfall than a strategy, but:  A couple years ago I sold some stock and took a big loss (thinking no big deal, it will offset the gains I had in some other stocks).  Three weeks later the company that I sold for a loss hired a new CEO and I thought he could turn it around (I still kinda' liked the company) so I bought the stock back.  At the end of the year, I owed an EXTRA $80k because of something called a 'Wash Sale Rule'.  Basically, the IRS will not allow you to realize the loss if you buy the stock back within 30 days.  Painful lesson.

 

[Wash 10 Crew]

I pay a guy more than I pay for government.  

 

[Lord of the Dunes]

 No, your buddy wanted to save money, I doubt he cared which line item it came from. I'm not arguing that your advice wasn't wise, just saying his overall savings that you are stating are probably about $10,000 a year off which is substantial considering his overall income. 

Really?

Were you there? How do you know what he wanted? He was talking to me, and the words he used were "I want to reduce my federal taxes", not "I want to keep my payroll expenses down." He didn't care if the company spent more money, he just wanted to reduce his taxes.

Perhaps the way your company is structured, saving the company money is actually saving you money, which is great. That is not how it worked for him. The more people he hired, the larger his company grew and it's relative value went up. Right up until he sold it for tens of millions.

 

[Surf and Dune]

Really?

Were you there? How do you know what he wanted? He was talking to me, and the words he used were "I want to reduce my federal taxes", not "I want to keep my payroll expenses down." He didn't care if the company spent more money, he just wanted to reduce his taxes.

Perhaps the way your company is structured, saving the company money is actually saving you money, which is great. That is not how it worked for him. The more people he hired, the larger his company grew and it's relative value went up. Right up until he sold it for tens of millions.

 Whatever man. I also own my own corporation which pays me a salary. If it makes sense to pay less to the Feds, but spend even more overall by adding an employee then rock on. I'd rather buy some tools/supplies, vehicle, etc for the company than send it to the State. Your mileage may vary. 

 

[Lord of the Dunes]

 Whatever man. I also own my own corporation which pays me a salary. If it makes sense to pay less to the Feds, but spend even more overall by adding an employee then rock on. I'd rather buy some tools/supplies, vehicle, etc for the company than send it to the State. Your mileage may vary. 

Your advice most definitely makes more sense for John, you and many others. This guy had offices in CA, TX and (FL, I think.) I was surprised he didn't pay himself more, but he really hated paying taxes. At any rate, he was happy to decrease his salary. He also wrote off his trucks, trailer and toys as advertising expenses. I'm sure that saved a lot more money, until he sold off the company to an international corp.  

I'm not arguing with you, just correcting your assumption that you know what he meant. You really have no idea since you never talked to him. That's very presumptuous, to put it politely.

 

[Surf and Dune]

Your advice most definitely makes more sense for John, you and many others. This guy had offices in CA, TX and (FL, I think.) I was surprised he didn't pay himself more, but he really hated paying taxes. At any rate, he was happy to decrease his salary. He also wrote off his trucks, trailer and toys as advertising expenses. I'm sure that saved a lot more money, until he sold off the company to an international corp.  

I'm not arguing with you, just correcting your assumption that you know what he meant. You really have no idea since you never talked to him. That's very presumptuous, to put it politely.

 All good, I was just adding some food for thought. There's a lot of ways to skin a cat. 

 

[RideSand]

Good Lord, I am over here just trying to figure out why I am able to pay myself with a pay check but my tax lady told me not to. This stuff is so confusing. 

I own my truck personally but fill it with fuel paid for by my company. Am I "missing out" on lots and lots of American dollars by not doing more here?

 

[Rockwood]

Good Lord, I am over here just trying to figure out why I am able to pay myself with a pay check but my tax lady told me not to. This stuff is so confusing. 

I own my truck personally but fill it with fuel paid for by my company. Am I "missing out" on lots and lots of American dollars by not doing more here?

Do they give you a vehicle allowance or anything?