To Slash Taxes, Buy Assets and Lease Them Back to Your Company

This strategy works especially well with real estate and other assets that are likely to appreciate in value.

It's bad enough when you have to pay tax once to the IRS. But C corporation owners are hit with a double tax whammy: first, when the corporation pays tax and, second, when Uncle Sam taxes them personally on dividends paid out by the company.

Strategy: Buy property and assets personally and lease them back to your company. That way, the company pays you deductible lease payments instead of nondeductible dividends, and you can offset the income with depreciation or amortization deductions.

That technique works particularly well with real estate and other assets that are likely to appreciate in value. In fact, if your company already owns a business building, you can buy it from your company now and then lease it right back.

Example: sale-leaseback deal. Suppose your company bought its building years ago and has since depreciated it down to zero. You estimate that the building and adjacent land are currently worth $1.5 million. Your company needs a quick cash infusion for proposed expansion, but money is tight.

Solution: Buy the building from your company for $1.5 million—using mostly cash you've borrowed—

and lease it back. Then you begin depreciating the building all over again, using a 39-year write-off period. Your company pays the going rate for rentals in your area, but the rental income is offset by the depreciation and other related expenses. Your company now has the cash it needs for expansion and can deduct rental payments for a building that had previously been fully depreciated.

In comparison, your company receives no tax deduction for money paid to you as dividends. The downside is that the company must pay tax on the gain.

Fly under IRS radar. This technique can be perfectly legal, but the IRS often casts a skeptical eye on such deals. To make sure your deal is legit and satisfies IRS standards, meet these five requirements:

1. The property's useful life must exceed the lease term.

2. Any lease renewal is set at a market value.

3. The buyer reasonably expects to profit from the deal.

4. The property is sold at a fair price, and the buyer assumes the risk of losing money.

5. A valid nontax business reason exists for the rental (e.g., leasing assets instead of owning them can release working capital).

- National Institute of Business Management

Tax Deductible Sea Cruise??!!

Make it a tax-deductible sea cruise. The IRS permits you to deduct up to $2,000 when attending a business convention or seminar held aboard a U.S.-flagged cruise ship. To qualify, you must establish that the cruise ship is U.S. registered and all ports of call are in the United States or its possessions. The business meeting must be the trip's primary purpose.

- National Institute of Business Management

Grab 5 Quick Tax Perks: Put Your Spouse on Payroll

Does your business need trustworthy and reliable employees? You may not have to look any further than across the dinner table.

Strategy: Hire your spouse to work as an official employee. Why put your spouse on the payroll? Because you can gain five tax benefits:

1. Build up tax-favored funds for retirement

If you meet the tax-law requirements, your company can deduct contributions made to a qualified retirement plan on your spouse's behalf. The annual limits are quite generous. If your company has a defined contribution plan, you can deduct contributions up to 25% of compensation or $49,000, whichever is less, for 2009.

With a 401(k) plan, another dollar limit applies: Your spouse can defer up to $16,500 to the plan in 2009

(plus an extra $5,500 if he or she is age 50 or older). Your company can match those contributions wholly or partially up to tax-law limits.

2. Shift taxable income away from the company

If you operate a C corporation, any compensation you pay to your spouse would have to stay with the company. Assuming your corporation is in a higher tax bracket than your personal tax bracket, you'll save tax overall if your spouse draws a salary. But don't look for any income-shifting tax benefit—possibly a drawback—if your company falls in a lower tax bracket than your personal bracket.

Note: S corporation owners and sole proprietors don't pay corporate income tax. You report business income on your personal return whether or not you pay your spouse a salary. So this could be a wash

3. Get more tax mileage from business trips

Generally, you can't deduct the travel expenses attributable to your spouse if he or she accompanies you on a business excursion. However, if your spouse is a bona fide company employee and goes for a valid business reason, you may deduct his or her travel costs, including air fare, lodging and 50% of the meal expenses. The benefit also is

tax-free to your spouse.

4. Cure health insurance coverage ills

If you're already paying more to cover your spouse under your company health insurance plan, hiring him or her shifts the expense to your company. Typically, your company can deduct your spouse's full health insurance cost. Even self-employeds can write off 100% of the cost under a so-called Section 105 medical-reimbursement plan.

5. Join the employer-paid life insurance group

Your spouse is entitled to the same group-term life insurance coverage as your other employees.

Key point: The first $50,000 of employer-paid, group-term coverage is tax-free to an employee. However, one catch for S corp owners: Generally, you can't deduct fringe benefits, such as group-term life insurance, for any employee who owns 2% or more of the company. By extension, that rule also applies to an employee-spouse.

- National Institute of Business Management

Create Tax Breaks: Buy parents' home, rent it back to them!

Say your aging parents live in a home that has appreciated in value, but they're no longer reaping any of the home ownership tax breaks during their retirement years. Sound familiar?

Good news: With one stroke of the pen, both you and your parents can win: They'd gain instant access to their home equity (without moving) and you'd pick up some generous new tax deductions. How? Buy your parents' house, and then rent it back to them—at the going rate.

Reasons for the sale/leaseback.

Under the current home ownership setup, your combined family unit is overpaying the IRS. Your parents' mortgage is either paid off or the payments represent mostly principal at this point. Even if they still take interest deductions, your parents' tax bracket might be low in retirement, so those deductions don't provide much tax savings. In fact,

many retirees take the standard deduction rather than itemizing. Here are two good reasons for your parents to opt into this plan: It puts cash in their pockets without having to refinance or dip into a home equity loan. It allows them to put their money into safer investments than the real estate market.

Transferring the house. To avoid gift-tax complications, pay a fair price for the home. Support the buying

price with a qualified and independent appraisal. Then, both sides should enter into a lease at a fair rental value.

One benefit: Courts have said that landlords can reduce their fair-market rent by 20% when renting to relatives. That lower rent reflects the savings in maintenance and management costs. (L.A. Bindseil,TC Memo 1983-411)

But don't set the rent too low; the IRS might say the rental home is really for your personal use. In that case, your deductions might be limited to mortgage interest and property tax, the same as if you owned a vacation home.

Taking deductions. Once you own your parents' house, you're entitled to reap the tax benefits of owning rental property.

That includes taking write-offs for operating expenses, such as utilities, maintenance, insurance, repairs and supplies.

You also can claim depreciation deductions for the home, but you can't depreciate the cost of the property apportioned to land.

So, obtain an appraisal allocating the price paid between the depreciable structure and the nondepreciable land.

You can use these deductions to offset the rental income received from your parents. Any allowable tax loss will phase out for people with adjusted gross incomes between $100,000 and $150,000. You can take any suspended losses when you sell the house.

Bonus benefit: Once you own the house, you may be able to write off occasional travel expenses you incur when visiting the house (your rental investment).

Endgame: Eventually, your parents won't be able to live in the house. Then, you can sell it, rent it to another tenant or move in. If you move in and make it your principal residence for at least two years, you can sell it and shelter another $250,000 or $500,000 worth of capital gains: a true tax bonanza!

- National Institute of Business Management

QuickBooks Tips #103: List of Payroll Expenses & Liabilities

List of payroll expenses and liabilities
Payroll expenses
Employee’s gross pay
Employer payroll taxes:
- Social Security (FICA)
- Federal Unemployment Insurance (FUTA)
- Medicare
- State Unemployment Insurance (SUI)—if paid by employer
- State Disability (SDI)—if paid by employer
Payroll liabilities
Taxes you’ve withheld from paychecks for the following:
Social Security (FICA)
Federal Unemployment Insurance (FUTA)
Medicare
State Unemployment Insurance (SUI)
State Disability (SDI)
State income tax
Federal income tax

QuickBooks Tips #102: Item Types

The following are various QuickBooks item types.

Items for things you buy and sell

Service Services you charge for or services you purchase.
EXAMPLES: Professional fees, labor
Inventory Part Items you purchase, track as inventory, and then resell.
EXAMPLES: Electrical outlets, t-shirts
Inventory Assembly
(Premier)
Items you produce or buy, track as inventory, and then
resell.
EXAMPLES: Pre-assembled door kits, custom bicycles
Non-Inventory Part Items you sell but do not purchase; items you purchase but do not resell; items you purchase and resell, but do
not track as inventory.
EXAMPLES: Custom-made slipcovers, pizza, office
supplies
Other Charge Other charges on a sale or purchase.
EXAMPLES: Shipping charges, delivery charges
Group A group of individual items already on the item list.
EXAMPLES: A group of services and lab fees for office
visits, a group of services and food items provided by a
caterer

Items that calculate

Subtotal Calculate a subtotal before calculating a discount or
charge that covers several items.
Discount Calculate an amount to be subtracted from the total.
(To discount several items, use a subtotal item before the discount item.)
Payment Record a payment received at the time of invoicing so that the amount owed on the invoice is reduced.
Sales tax Calculate a single sales tax for a sale.
Sales Tax Group Calculate two or more sales taxes grouped together and applied to the same sale.

QuickBooks Tips #101: Accounts Created Automatically

The following is a list of the accounts that QuickBooks creates automatically.
Accounts Receivable. QuickBooks creates this account during the EasyStep
Interview, or the first time you create an invoice.
Inventory Asset. When the first inventory item is created in a company data file,
QuickBooks creates the Inventory Asset account.
Undeposited Funds. QuickBooks adds this account to the chart of accounts the
first time you record a payment from an invoice or a sales receipt. QuickBooks uses
this account to hold money you’ve collected until you deposit it in a bank account.
Accounts Payable. QuickBooks creates this account during the EasyStep Interview,
or the first time you enter a bill.
Payroll Liabilities. QuickBooks adds this account to the chart of accounts
automatically when you turn on the payroll feature in a company file. QuickBooks
initially maps all payroll items that create liabilities to this account.
Sales Tax Payable. QuickBooks creates this account when you turn on the sales tax
feature.
Opening Bal Equity. This account is created the first time you enter the opening
balance for a balance sheet account. Every time you add a new account with an
opening balance, QuickBooks records the second half of the entry in the Opening
Bal Equity account. This means that total equity is the net balance of the assets
minus the liabilities entered into QuickBooks. Once you’ve entered all of the
accounts and balances, you may use a journal entry to allocate Opening Balance
Equity to the proper equity accounts.
Retained Earnings. This account is unique because there is no register associated
with it. Each time you run a balance sheet, you assign the date of the report.
QuickBooks then calculates the net income from all transactions from the earliest
date in the company file to the end of the fiscal year prior to the current year.
QuickBooks displays the results as retained earnings. Because of this feature, you
don’t need to make the traditional closing entries at the end of the year.
Uncategorized Income. QuickBooks creates this account the first time you enter
an opening balance for a customer.
COGS. When the inventory feature is turned on and the first inventory item is
created in a company file, QuickBooks creates a Cost of Good Sold (COGS) account.
Payroll Expenses. This account is created when you turn on payroll in a company
data file. All payroll expense items are initially mapped to this account.
Uncategorized Expenses. QuickBooks creates this account the first time you enter
an opening balance for a vendor.
Reconciliation Discrepancies. QuickBooks creates this expense account when you
enter an adjustment to reconcile small accounting discrepancies. QuickBooks uses
this account to track all reconciliation differences.
Purchase Orders. QuickBooks creates this account the first time you create a
purchase order. This is a non-posting account that does not affect your balance
sheet or income statement.

Allergy Treatment Important for Year Round Wellness

A workplace filled with sneezing in spring, summer or fall may indicate workers are fighting seasonal allergies. And allergies can be serious. It’s wrong to think in terms of grin and bear it. Without treatment, allergies can cause sinus and ear infections, asthma, night-time breathing and sleep problems, and more may result. For adults, allergies are the fifth leading chronic disease and a major cause of lost days at work, according to the Asthma and Allergy Foundation of America. The result: nearly four million missed workdays or lower output days, at a cost to business productivity of at least $700 million each year. Seasonal allergies occur when the human body treats something harmless, such as pollen or mold, as though it were a toxic substance. The immune system tries to rid the body of the pollen in the same way it gets rid of harmful germs, by sneezing, making mucus and causing nasal tissues to swell. It can be tough to rid the workplace of something carried by the air. However, employers can help by urging employees to see a doctor who can rule out major health concerns. Age, health risks and chronic health problems may exclude using certain drugs sold over the counter. A doctor can advise which drugs can be used for treating allergy symptoms without causing harmful side effects. An allergist can pinpoint what’s causing all that sneezing. He or she may prescribe stronger drugs or even allergy shots. Shots expose the patient to tiny amounts of the matter causing problems. Over time, the body becomes less sensitive to pollen and other symptom triggers. Blue Cross and Blue Shield of Texas can help. For more info on allergies, log on to Blue Access® for Employers to see Blue Resource materials, including additional information on seasonal allergies.

A Division of Health Care Service Corporation, a Mutual Legal Reserve Company, an Independent Licensee of the Blue Cross and Blue Shield Association.