Leasing Assets To Your Corporation

1. Leasing Assets To Your Corporation By Mindy Stricklin While there are many equally valid reasons to incorporate, one consideration that can yield relatively immediate results is tax savings. If you already have a corporation or are thinking about starting one, leasing assets to it is a tax strategy you should seriously consider. This is how it works. Simply incorporating does not imply that the corporation must own all of the assets it employs. In fact, there are numerous legal, tax, and financial reasons why your corporation should not own its own assets. Leasing assets to your corporation is a completely legal and beneficial way to lower your overall tax liability. When you lease assets to your corporation, the business pays a lease or rental payment, which you then claim as income. This allows you to deduct items like acquisition interest, depreciation, repairs and maintenance, insurance, and administrative costs as the lessor. When the interest and depreciation deductions are exhausted, the assets can be transferred to a family member in a lower tax bracket or sold to the corporation. A sale to the corporation would result in the corporation having a higher tax basis (cost) than it did in the hands of the lessor (you). This would boost the corporation's depreciation deductions, lowering its tax liability. If you haven't already noticed, leasing assets to your corporation is a fantastic way to take money out of the business rather than through payroll. Payroll deductions must be considered when receiving a paycheck. Not so when it comes to rent. Double taxation is another reason to lease assets to your corporation. If your corporation sells appreciable assets for a large profit and you try to withdraw the money, you will be taxed twice. If you lease the asset to the corporation, this will not be the case. In this case, you will only be taxed once. Legally, it is also preferable to have your corporation own as few assets as possible if you are in a high-risk industry prone to lawsuits. If you lease assets to your corporation and your corporation is sued, a hostile party will find it difficult to seize the assets if they are in your name rather than the corporation's. Almost any asset can be rented to your company. Office space, machinery and equipment, vehicles, computers and peripherals, and real estate are some examples.

2. Aside from renting the assets personally, you can rent the assets to a corporation through a multiple entity arrangement such as partnerships, S corporations, or limited-liability companies. However, you should not use another regular corporation because it may be considered a personal holding company (one whose primary source of income is passive income such as rents and royalties, etc.). Personal holding companies face a penalty, which would negate any tax-saving rental strategy. The following are the requirements for leasing assets to your company: You must create a formal and genuine lease agreement. You should approach the leasing agreement as if you were dealing with an unrelated party. The rental amount you decide on must be reasonable. To put it another way, you can't charge whatever you want. It must be reasonable and comparable to the rental rates for similar assets in your area. So there you have it, yet another reason to run your business as a corporation. My final piece of advice is to always consult with an attorney and a tax advisor before making any major legal or financial decisions. There are numerous exceptions and special rules that apply, as with most legal or tax-related issues. Your attorney or tax advisor will be able to provide accurate advice based on your specific circumstances and goals. http://www.mindystricklin.com