Stuart O. Bronstein <spamtrap[at]lexregia.com> wrote:

- quote -

That depends on relative tax rates. With the low rate on
qualified dividends, it might be cheaper overall for it to
be a dividend (if the company's tax rate is much lower than
the person's).

Seth

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

juliabatn[at]yahoo.com (Julia Brinkley) wrote:

- quote -

An old, famous tax decision clearly states that you are
under no obligation, moral or otherwise, to pay any more tax
than is legally due. It is neither rude nor unpatriotic to
search out your least tax alternative. In fact, the tax code
is full of completely legal opportunities, and traps,
designed to encourage and reward certain activities.

That said, you have too many variables to answer your
question fully. You should see a knowledgeable tax
professional soon.

In general you should keep it straightforward. Whether paid
to you as compensation, a dividend (assuming you own the
company), or a bargain sale, it will be taxable income to
you and may or may not provide a deduction to the
corporation (I would not recommend bargain sale in this
scenario).

Compensation and dividends have two very different tax
effects for both you and the company. Compensation is paid
and deducted by the company for current (and past) services
rendered and is income to the recipient at ordinary income
tax rates plus social security and medicare taxes (and maybe
state tax).

Dividends would have to be paid to all shareholders and are
not deductible by the company, but are taxed to the
shareholder(s) at a greatly reduced federal tax rate (for
the next few years at least). The answer will change if the
corporations was ever an S-corp or if dividends paid are in
excess of accumulated E&P.

If you own the company, you will want to consider the
corporation's potential tax savings (current and future, or
NOL carryback refunds) resulting from a compensation
deduction (and considering the issue of "reasonable
compensation") versus a dividend. And you might want to
consider spreading compensation over several years, perhaps
making deductible retirement plan contributions, and any
alternative minimum tax effects.

It is impossible to know which options will result in the
lowest combined tax for both you and your company without
running the numbers. It will be a combination of several
options dependant upon your own, unique situation.

K. Belsak, CPA
Atlanta, GA

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

juliabatn[at]yahoo.com (Julia Brinkley) wrote:

- quote -

The result is the same whether the corporation gives you
cash or if the corporation gives you a house. It would seem
easier to just give you the cash. Having the corporation by
a house on your behalf just to transfer it to you would
unnecessarily complicate things.

Although the result will be the same in either case, it is
not certain that this payment to you will be treated as
compensation. It may be partially or wholly treated as a
dividend. The amount of the salary must be "reasonable".
The determination of what is reasonable depends on many
factors.

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

juliabatn[at]yahoo.com (Julia Brinkley) wrote:

- quote -

Your second option won't fool anyone, and the IRS will tax
you on the value of whatever you receive. If you buy it,
though, the IRS may say that it is not compensation for
services, saving you a bit of withholding tax. But in that
case they might treat it as a dividend. The last time I
checked dividends were still taxable to you but not
deductible by the corporation, making it much more
expensive.

Even in your first scenario, they may say that a portion of
what you receive is more than "reasonable compensation" for
the work you performed, and treat that amount as a dividend.

- quote -

When you're talking about that kind of money, it's foolish
not to pay a tax advisor to look at your specific situation
and give you specific better advice than we can here.

Stu

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

(I hope this isn't a rude question, but it's a serious one.
I don't want to overpay the US government. That isn't being
patriotic. So, hopefully someone can see the best approach
for me to take with the scenario poised below. I am in a
personal information discovery phase right now and will hire
a tax attorney to execute this, but want to see what
third-party opinions have to say as I am naive about the
process, and want to make the smartest move going forward.)

If my C Corporation pays me $2.3M to buy a house, car, other
personal items, is it better to go down a path to have this
full amount paid to me in one lump sum, with me bearing the
separate personal tax responsibilities after the
transaction, or is it smarter/better to have the corporation
buy these items and sell them to me for $1.00? (btw & FYI
this transaction is considered compensation for the great
work I performed for free over the last 4 years building the
company.)

So, OK. Don't get mad at the gifts/or the amount – just
looking for sound logical advice on how I can approach this.
Any level of detail would be greatly appreciated, and maybe
others will learn too that are on my track. I simply have
no idea how to calculate what my tax baring responsibilities
will be.

Thanks so much.
Julia

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->