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).

Capital Gains and Dividends Get Special Treatment

The tax rate on capital gains and dividends remains at zero percent for 2010.  You will be allowed to receive dividends and take profit on the sale of long-term assets you’ve owned, and pay no tax until they push you into the 25% tax bracket.  To qualify for the zero rate you must have owned the assets over a year and be in the 10% or 15% tax brackets.

For 2010 the 25% tax bracket starts at taxable incomes greater than $67,900 for married filing jointly and $33,950 for single filers.  When your taxable income exceeds these amounts your dividends and long-term capital gains will be taxed at 15%.  Short-term gains and long-term gains on collectibles do not qualify for these special rates. 

For example, suppose you were married filing jointly and all your income was from long-term capital gains.  For 2010, you would be pushed into the 25% tax bracket when your income exceeded $67,900.  If the only taxable income you had for the year was $65,000 of dividends and long-term capital gains, none of your income would be taxed.