Home New - Think Outside the Tax Box

LOOKING FOR LEGAL WAYS
TO REDUCE TAX?

New tax reduction strategies carefully explained and exhaustively researched every two weeks. Receive breaking news updates on tax law changes. Members only monthly AMA with TOTTB.tax.

WE PUBLISH TAX STRATEGIES FOR…

FEATURED CONTENT

The Trouble with Management Companies

Management companies exist in a variety of fields for sound reasons. Real estate owners, for example, will hire a management company to collect the rent and deal with maintenance of their properties. Professional practices may use management companies to allow non-professional owners a stake in the practice. Sometimes, though, management companies are not for a real business purpose but rather as a device to shift income. It often does not end well as we will see.

Read More
1 2 3 41

CURRENT EDITION

The Trouble with Management Companies

Management companies exist in a variety of fields for sound reasons. Real estate owners, for example, will hire a management company to collect the rent and deal with maintenance of their properties. Professional practices may use management companies to allow non-professional owners a stake in the practice. Sometimes, though, management companies are not for a real business purpose but rather as a device to shift income. It often does not end well as we will see.

Reduce Your Taxes by Making Your Spouse a Business Partner

Question: Can I save S/E tax and create passive income by having my spouse own my entity?

Answer: Potentially, but it depends on a number of factors.

If you’re a sole proprietor or single member LLC, you’ve probably felt the sting of self-employment taxes (S/E tax).
If you and your spouse work together and you’re not incorporated, the IRS generally considers you a 50/50 partnership and both spouses’ earnings are subject to S/E tax. This is true even if your spouse minimally participates in the activity.

That’s right, even without a partnership agreement, if you and your spouse both share in the profits and losses of an unincorporated business, the IRS considers that you have a partnership owned equally.

The IRS calculates self-employment taxes by apportioning 50 percent of the earnings to each spouse. It’s possible to pay way more than you need to if your profits are more than the threshold for Social Security.

One way around this is to make your non-participating (or passively involved) spouse your business partner. But if you live in a community property state, be sure to follow these guidelines to secure your savings.

Be Careful When Using a C Corp to Avoid the Hobby Loss Rules

Starting a business is hard. Running a business is hard. And often, it isn’t profitable either – at least not right away.

As if losing your money isn’t enough torture, it can get worse. If your business is not profitable and remains that way for a while the IRS can reclassify it as a hobby. This is really bad because while you still have to pay tax on your hobby income, you can’t deduct any of the expenses. Ouch!

One strategy around this is to reorganize as a C corporation (since code section 183 doesn’t apply to them). However, if you’re thinking about using this to deduct expenses from your hobby, be careful! A taxpayer, a courtroom, and a whole lotta cats (explanation later) might change your mind.

Click here to continue reading.

CATEGORY NAVIGATION

SIMPLIFIED TAX STRATEGIES &
PRACTICAL IMPLEMENTATION

Think Outside the Tax Box provides tax reduction strategies along with practical
implementation advice in order to reduce your clients’ federal tax bill with ease.

error: This content is protected.
Scroll to Top