All Forum Posts by: Steven Hamilton II

I have land in a foreign country which I'm planning to lease it to the solar developer. It's going to be a 20-year lease which I'll be receiving the payment in advance. This foreign country allows the lessor to pay the income tax over 20 years. However, it seems like in the US, it is accrual-based meaning I have to pay the income tax once I receive the payment. My question is, is it possible to use future unpaid foreign tax credit? If not it's going to be double taxation on my income so I'm trying to see if there are any other options out there. It also seems like it is common to do long term lease for solars here in the US as well. I'm curious how they structure the deal to lower the tax burden.

Also, there might be cases where we might have to cancel the contract and return the money. Then, is there a way to receive back the paid tax?

Thanks

@Brian Poppleton

"High income owners of S Corps will often times have a C Corp management company. This saves tax if the C corp tax rate of 21% is less than their personal tax rate."

And what happens when the owner wants to extract capital from the C Corp as salary and/or dividends? What does that do to the effective tax rate of C vs S?  If the owner doesn't extract capital and lets it build up inside of the C Corp, what happens then?

"What kind of reasonable basis could be given to the little guy who wants to have a S or C corp provide management services to there sole prop? Might be more hassle than it is worth unless agent is making a killing."

Ignoring the various law doctrines, I think you are going to have a hard time convincing anyone that it's possible for an individual to manage themselves for profit, which is really what you're proposing.

As a house flipper your income is considered Earned income.  this income is taxed the highest because you pay income tax and social security tax.  

There are some strategies to convert your income to a different type of income that is taxed less.  For example

You can run your business through an S corp and convert part of your earned income to ordinary income.  On the ordinary income you only pay income tax. No social security tax.

You could convert ordinary income to capital gain income (lower tax rate) by renovating a house, then renting for a year, then sell.  

A good book that explains this is called "Tax Free Wealth"  by Tom Wheelright.  He is Robert Kyosaki's CPA.  

You would write off the total 12k purchase price disregarding the loan.  

The new tax code increased what is called the "diminimus safe harbor" to $2,500. This means any improvement you do that is less than $2,500 can be classified as repair and expensed in first year. Possibly the 12k total cost can be broken into chunks less than $2,500. Depends how it was invoiced. Then you can get the full write off the first year. Otherwise you would get about $400 deduction a year (vs $12,000 upfront).    Run this by a good CPA and they can save you some money.

So to you tax pros, how about this situation:

CA is the location of sample

Husband and wife own/share the S Corp 50%/50%.

Only one spouse is licensed, but licensed also holds a full time job elsewhere outside of real estate.

All commissions are paid to the S Corp and costs of doing business (photography, marketing, office, legal, travel, auto, gas, accounting, etc) are paid from the company account.

In such circumstances, are you all saying this is or is not appropriate from an IRS, legal, and tax standpoint?

@Steven Hamilton II

I do everything 100% according to law. Thanks for your input.

@Steven Hamilton II

In general I don't count on any government money for retirement or disability. I put money away for that. Who knows if social security will even be around when I'm ready for it. I don't think it's a good idea to give the government your money for rainy days... There's other places to give it to that will also give you tax benefits.

@Steven Hamilton II

I honestly can't remember exactly what he does and why. We had the conversation a few years back but he has been doing this for 40 years and isn't a CPA who treads the waters. I completely trust what he is doing. I have a few things going on so that could be why he advised me to do it this way and not loose benefits.

@Michael Plaks

I disagree...predictably.  But -- it's the holidays so I didn't want to cause a fuss.  : )

The 100% compensation theory for personal services ignores the corporation's intangibles and the owner's ability to earn a return of investment on those intangibles and the shareholder-employee's labor. Here we're talking about intangibles such as goodwill, customer and vendor relationships, business contacts, etc. These intangibles generally have a tax basis of 0 if self-generated, but the FMV is likely much higher.

It helps to think of the individual as operating in two distinct and separable capacities here with respect to his or her S Corp. First as the owner, who is due an ROI on the assets of the corp and the labor of the employees. Second as the employee, who should be compensated "reasonably" for any services provided and is not obligated to be compensated a penny more.

Have you seen substantial authority or reasonable basis for a 100% compensation position for service-based S Corps with no employees except for the shareholder-employee?  The IRS has to work within the same boundaries that we do, which is why I doubt they'll bring the 100% compensation argument.  If they do, it will be shot down quickly.

Thank you for the responses. I’m in the central Florida area, near Orlando and the college of UCF. Since I am just starting out and plan to house hack, I don’t think I require significant CPA experience at this stage of my investment career. As my portfolio grows over time I will be sure to speak with the best I can find. I know that the money is well spent on a CPA but I want to make sure I’m not paying for “overkill” if I can avoid it.