Posted by JHyre in Ohio on March 05, 2002 at 16:31:13:
Blended rate of 34 to 35%.
John Hyre
Bill or John: Is this legal and soes it make sense - Posted by Jeff M
Posted by Jeff M on March 05, 2002 at 13:23:57:
Bill and/or John:
I am just getting into Real Estate investing, and have been reading and giving lots of thought to how to set myself up for maximum protection AND Tax advantage.
Suppose I were to set up a C corp(XYZ Corp) which invests in income producing commercial real estate and this C corp earns $120,000 net over the year.
Suppose XYZ Corp has two shareholders, John Doe and an LLC called “ABC Investing”(of which John Doe is the only member). Remember that XYZ corp makes $120,000 in income for the year. Could XYZ Corp pay John Doe a dividend of $50,000 and then pay ABC Investing $70,000?
My thinking is this … XYZ then has $0 Net Income, so avoids the Corporate tax (I think…). John Doe gets $50,000 of income for which he only pays 15% tax. The balance of the income goes to ABC Investing, and that income passes to John Doe via a K-1.
Are my assumptions correct? Are they legal? Do they make any economic sense? Forgive me if these are stupid questions, but, as I said, I am just getting started, and wish to maximize my benefits. Thanks in advance for all of your great advice!
The flaw… - Posted by JHyre in Ohio
Posted by JHyre in Ohio on March 05, 2002 at 13:52:10:
Dividends are not deductible by XYZ, so its income is NOT reduced by the distribution. It AND the shareholders ALL have taxable income…welcome to the world of the double tax.
John Hyre
Re: The flaw… - Posted by Frank
Posted by Frank on March 07, 2002 at 14:41:47:
John,
Couldn’t he just pay himself a salary instead of taking a dividend? Then it would be a normal deduction for the C-Corp. That’s what I gathered from Bronchick’s course ABC’s.
Re: The flaw… - Posted by Jeff M
Posted by Jeff M on March 05, 2002 at 14:16:53:
John: Thanks for the quick reply… I knew it looked too easy :)!!! BTW, what is the corporate tax rate for a setup like I had described? I just like to educate myself. Thanks again.
Jeff M