Posted by James Buster on October 03, 2002 at 23:53:32:
Because the rehab work is usually considered an improvement,
not maintenance, so its cost is added to the basis of the property,
which reduces taxable gain upon sale, rather than expensed when
incurred. Yes, it’s just another way for Uncle Sugar to get its
fix now rather than later.
What to do with c-corp profits? - Posted by JP
Posted by JP on October 03, 2002 at 17:54:05:
I know this isn’t directly related to real estate investing, but I’m hoping it could be…
I run a relatively small but profitable web business via a c-corp, with myself and my wife set-up as employees who receive a salary each month. Basically what I do is pay us the exact amount that we need to live off of i.e. pay the mortgage and all of our other monthly bills.
At the end of the year it looks like there is going to be around $120k left in profits in the c-corp. Now I’ve been thinking about setting up a self-directed SEP and I know the corp can contribute and deduct up to 15% of our salaries for the year, but that will still leave at least 100k in profits in the c-corp for the year.
Aside from paying us huge salaries the last few months of the year which would sort of defeat the purpose, what else can I do to reduce or eliminate taxes on these profits? Does anyone have any creative ideas for me?
If I made a loan to someone or some other company, can that loan amount be expensed from the profits? What if the c-corp bought a house with the intention of fixing it up and reselling it later … are those costs deductible as a business expense? Are there any other investments, etc. that could be made to at least defer taxes on the otherwise 100k+ profits at the end of the year?
Re: What to do with c-corp profits? - Posted by Peter_MD
Posted by Peter_MD on October 04, 2002 at 07:10:43:
JP:
Find a good CPA in your local area quickly…you need them it in the worse way.
Buying to acquire a property and subsequently fixing and upgrading are costs recognized and capitalized like any other asset a business will acquire to sell to the general public…and expenses and revenue are not realized until the property is sold and payments are received after settlement.
I can do accounting and taxes very well, thank you, but I’m very sure you would not want me to fix the plumbing or do electrical work on any of your properties.
Get a good CPA pronto!!!
Re: What to do with c-corp profits? - Posted by John H.
Posted by John H. on October 03, 2002 at 23:44:12:
Hmmmm… What if one invested in a new office? One that could be resold later? Dunno, but perhaps try posting a “Need great CPA in (your town) soon!!” message. Might draw some suggestions. Does your Corporate lawyer have any suggestions for CPA’s?
Best Luck -
JH
Re: What to do with c-corp profits? - Posted by Eddy (CT)
Posted by Eddy (CT) on October 03, 2002 at 20:01:08:
JP,
I have a C-corp and bonus out at year-end to clear the books to avoid the double wammy of personal and corporation taxes. You should have a good CPA or accountant who has experience with small corps and is available to answer your questions via phone. You can invest in properties (if your articles of incorp allow it), preferred stock, used mobil homes to sell with financing or any number of other angles that a CPA should be able to help you with.
Best of Luck.
Now you’re talking… - Posted by JP
Posted by JP on October 03, 2002 at 23:59:50:
What if I buy a property that I want to rehab … with the intent of making it into my new office. But it just so happens that as soon as I was done rehabbing it someone came along and made me a good offer I couldn’t refuse? =)
Yeah… - Posted by JP
Posted by JP on October 03, 2002 at 22:46:51:
Yeah I definitely need to find a CPA, trying to find a good one now. My corp was setup to basically be able to engage in any type of business it wants … so you are saying I can invest in properties, etc. and deduct the costs to acquire them, rehab them, etc.? That would be perfecto. Thanks for your input …
Not really - Posted by randyOH
Posted by randyOH on October 03, 2002 at 23:05:02:
You cannot deduct the cost of acquiring and rehabbing a property until it is sold. The only way I know of to get a big write-off from an investment up front is to invest in an oil drilling venture. You might want to pay out 50k (bonus to you) and retain 50k. The corporate tax rate is only 15% on the first 50k.
Never understood… - Posted by JP
Posted by JP on October 03, 2002 at 23:43:39:
Yeah this is what I never understood. If you were to setup a corporation who’s purpose was to attempt to make a profit by rehabbing properties, why wouldn’t the costs of buying and performing the rehab be tax deductible? Say you had such a corporation that did 1 rehab so far in the year and made a 50k profit. Towards the end of the year you spend 50k on buying and rehabbing another property, but you haven’t sold it yet by the end of the year. Why would you get taxed on 50k profits when technically at the end of the year you wouldn’t have any profits??
Re: Never understood… - Posted by mike
Posted by mike on October 04, 2002 at 02:24:07:
My idea:
Start up a construction corp…s corp…on top of your other llc. Transfer the profits you make and pay your construction corp for materials, which are used for the construction of duplexes…
I figure if you have to pay 15 percent to 39 percent, you might as well have a construction company to deduct materials through, and then use the project as long term, and deduct as a completed contract accounting method…
just my thoughts
mike