Taxes - Incorporating for tax shelter?

[schockergd]

I've heard various talk in the past about ways to shelter yourself as an agent against exorbant personal taxes. One way sugguested was forming a S-corp and doing all your real estate from that , meaning 100% of your comissions would be paid into the scorp , and then the scorp pay you , or you as a opperating member take out dividends or whatnot from it , to reduce taxes.

I'm a fairly new agent (2mo) but i've got closings scheduled, and now i'm worried that uncle sam will really take a bite out of my work next year when tax time comes around.


Thanks!

[MileHighAgent.com]

Hi there!
My tax accountant insisted I immediately (he said I should do it immediately before I had closings but I did it after I'd had one or two) get a tax id and register as an s corp...
All of my commissions go to the s corp - which go in to my s corp bank account - then all expenses and corp credit card (after you get your s corp and your s corp bank acct you should get an company credit card to keep business expenses in one area) payments get paid out of that account.
If I need money for my personal things - I wright myself a check on a draw basis - you can also pay yourself a salary. I believe this keeps the liability of your business in your business.
I really don't fully understand how everything works - all I know is my accountant works with MANY small businesses including many successful agents and they all do very well. They recommend my accountant to others - so he must be doing something right.
Obviously, I also recommend you speak to other successful agents in your area to get a good tax accountant - by referral only.
I think my accountant is worth his weight in gold!

[Richard@AAP]

I own my own firm but this can apply to yourself as well, here's what I do:

Like mentioned above you need to incorporate and then file for subchapter S election (stating your an S-Corporation). You designate yourself as the only shareholder and CEO/President. As a corporate officer (the CEO) you have to pay yourself a salary for your duties to your corporation so you can pay yourself say.... $20k a year in standard W-2 Income which is taxed as personal income so let's say 25% + 7% for state + 15.3% for self employment taxes for a total tax rate of roughly 47.3%. Let's say your on par to make $100k this year tho, and you still have $80k in the company you have to get rid of, next what I do is have my company pay ME personally for my vehicle mileage. For this to work YOU have to own your vehicle not your company and be on an accountable plan meaning you have to track all of your miles on paper and provide it to your company (yourself in this instance). So assume you drive 2500 miles a month for business, showing properties, to your office etc. you multiply that by the mileage rate currently set at 43.5 cents per mile equates to $1087.50 a month or $13,050 annually that your company can pay YOU totally tax free!! So with the $20k in salary you paid yourself and $13k in mileage you paid yourself you still have $67k left in the company that you want out to pay yourself, what I then do is make a shareholder disbursement, since I'm the only shareholder I get all $67k. This $67k is taxed similarly as the $20k salary HOWEVER you don't pay the 15.3% self employment tax that you would if it were money paid for a W-2 salary, thus in turn saving you approximately $10,251 in taxes if it were paid as ordinary salary to yourself!!! So what did we learn here...if you paid yourself all $100k before doing this your net take home would be roughly $65k that you get to keep. Utilizing this strategy your net take home is roughly $79k to $80k a savings of roughly $15000 in taxes!

These numbers are rough numbers so take them with a grain of salt, the main idea is to get the methodology across to you. Enjoy!

[Ralph]

richard@aap has it right. Not only the car, but other expenses like health insurance and other liget expenses can be taken. Talk to you CPA. Tax evasion will get you in jail, but tax avoidance is perfitly legal. A good CPA who works with small business should know all the little tricks of the trade to keep you on the edge of that enveolpe. One thing I have always been told is to have your corp needs to make a small profit every year or so. The IRS has this thing called a hobby business. They do not like those and can take action against them. Again talk to your CPA. Having your wife as an officer can be of benefit if you are layed up and can not take care the books, pay your taxes when do etc. Of course that depends on your relationship. Banks like a second name, but will do business with you without it.