How To Take Up To $500,000 Out of Your Corporation -- TAX FREE!
by Alex Goumakos, CPA
Here's a LEGAL LOOPHOLE that will allow you to take up to a half million
dollars out of your small business corporation --- TAX FREE!
assume that you've outgrown your principle residence and want to move into
another one. Instead of following the normal routine of putting your house up
for sale and waiting for a buyer, why not consider selling your house to
Selling your personal residence to your corporation
is one of the smartest tax decisions you can make. Not only is it an
excellent way to pull money out of your corporation TAX FREE, but it's also a
great way to give yourself a tax-sheltered investment. Here's what I
If you want to sell your personal residence and you own either a
C or an S corporation, selling your home to the corporation gives you the
following tax benefits:
You can pull money out of your corporation TAX
FREE! - This is because the gain on the sale of a principle residence
can be excluded if the gain is $250,000 or less ($500,000 for married
couples filing jointly) as long as you meet
Your company can rent out the house and
generate BIGGER tax deductions - Since you sold your personal residence to
the business, it now has a stepped-up basis (higher value) and can
generate larger depreciation deductions than if you rented out the house
yourself. If your corporation is an S corporation, these deductions can be
used to offset your other income.
We just used this strategy much to
the delight of one of my clients. Here are the facts and circumstances of
this particular case:
My clients, Eric and his wife (not their real
names and situation used by permission), are the 100% shareholders of a
small and very successful printing company. The printing company is a
Subchapter S corporation. Eric and his wife are expecting their fourth child
in less than six months. They have both decided that they will need a bigger
home. Instead of putting their current home up for sale, Eric and his
wife have decided to keep it for investment purposes.
of keeping the home personally, they have sold it to the their corporation
for its fair market value of $285,000. Since the cost of the home plus
improvements is $175,000, Eric and his wife have a gain on the sale of
their residence of approximately $110,000.
Since married couples
filing jointly can exclude up to $500,000 of gain on the sale of a principle
residence (subject to certain restrictions), Eric and his wife will NOT
pay any federal tax whatsoever on the transaction.
In addition, the
corporation now has an investment worth $285,000 that it will depreciate as a
rental property. If, at the end of the year, the expenses are greater than
the rental income, the owners of the S corporation (Eric and his wife)
will have a rental loss that they can use to offset their other
Can you see the beauty in using this tax strategy?
addition, if your corporation generates adequate cash, you can structure your
own financing. Of course, everything has to be documented and executed as if
you were selling it to a stranger. In other words, you can't sell your
$200,000 home for $700,000 (unless that's the market value).
strategy works even better when you have a C corporation. You can avoid the
double taxation trap completely. Also, you can even use this tactic when
you don't completely own your corporation. However, you'll have to
consider the risks of losing control of the home to a fellow
Nevertheless, if you're looking for a way to pull out
money from your small business corporation TAX FREE, consider using this
strategy. As always, be sure to consult with your professional tax advisor
before considering this or any other tax or investment strategy.
Business Tax Loophole: Leasing Assets To Your Corporation
Leasing assets to your corporation is
a tax strategy you should absolutely consider if you already have a
corporation or are thinking about forming one.
New Tax Law Turns Small Biz Loophole Into A Crater
In case you were too busy last year to notice, our beloved politicians passed
another tax bill designed to put more dollars in your
Disposing of Assets: Figuring the Gain or Loss
Knowing how to write the proper adjusting journal entries that will record all the parts of a sale or trade of your fixed assets is a little
Copyright 2004 Alex Goumakos, CPA
Alex Goumakos, CPA has over 20 years of experience helping entrepreneurs
start and grow successful businesses. If you're ready to earn more money, pay
less tax and generate more wealth, visit his website for tips,
strategies and tools to help turn your goals into results. http://www.goldminetactics.com
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