• LinkedIn
  • YouTube
  • Twitter
  • Facebook
  • Google+

Leasing to your company: Save a tax bundle

by on
in Small Business Tax,Small Business Tax Deduction Strategies

Let’s compare the tax results for leasing a business building to a C corporation as opposed to having the company own the property outright.

Option A: Leasing. To avoid liabilities, you set up a new single-member LLC (owned 100 percent by you) to buy the land and the building. The LLC leases the building to your company.

After 15 years, you sell the property for a $1 million gain. The entire gain is taxed to you personally. (The LLC pays no tax.) Part of the gain attributed to recapture of depreciation is taxed at a maximum federal rate of no more than 25 percent; the rest is taxed at no more than 15 percent (assuming the current long-term capital gain tax-rate structure stays in place). With an assumed federal tax bill of $200,000, your net after-tax profit would be $800,000 ($1 million less $200,000).

Option B: The corporation owns the land and the building. If it sells the property for $1 million, the company will probably pay a federal income tax rate of 34 percent, which translates into a corporate tax bill of $340,000 (34 percent of $ 1 million). Assume the company distributes the remaining $660,000 to you as a taxable dividend.

Even if the 15 percent maximum tax rate on dividends is preserved, you still owe tax of $99,000 (15 percent of $660,000). After federal taxes, you would net only $561,000 cash in your pocket ($1 million less $340,000 less $99,000).

Bottom line: You save a whopping $239,000 of federal income tax ($800,000 compared to $561,000) with the leasing arrangement.

Like what you've read? ...Republish it and share great business tips!

Attention: Readers, Publishers, Editors, Bloggers, Media, Webmasters and more...

We believe great content should be read and passed around. After all, knowledge IS power. And good business can become great with the right information at their fingertips. If you'd like to share any of the insightful articles on BusinessManagementDaily.com, you may republish or syndicate it without charge.

The only thing we ask is that you keep the article exactly as it was written and formatted. You also need to include an attribution statement and link to the article.

" This information is proudly provided by Business Management Daily.com: http://www.businessmanagementdaily.com/7187/leasing-to-your-company-save-a-tax-bundle "

Leave a Comment