Loopholes

Turning Services into Property Can Create a Non-recognition Event

It’s not often that we get to wave a magic wand and turn a taxable transaction into a non-taxable transaction, but partnership taxation offers us this opportunity. Partnership taxation is extraordinarily flexible and combines tax-favored aspects of both corporate entity taxation and individual taxation.

Proper planning and use of this flexibility can actually turn a contribution in return for a partnership interest from a recognition event that results in taxable income to you to a non-recognition event that merely adds to your basis in the partnership.

The difference between contributing services versus property for a partnership interest is huge. Contribute services, and you have taxable compensation. Contribute property, and you have a non-recognition event. Determining whether your contribution is classifiable as property rather than services saves a ton in tax. Keep reading to learn how.

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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.

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CURRENT EDITION

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