How to Pay Zero Dollars in Taxes on Millions in Profits

[bflbob]

Do you think that a for-profit corporation that makes several million dollars can actually get away without paying any corporate taxes?

We did it recently, and I'd like to share the basics with all of you, but I'm going to make you work a bit first. In fact, I think the final answer will be presented at this year's B&P.

Anyone have any guesses???

 

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[DeletedUser394]

What instantly popped into my head: "Have the CEO Rob a Bank"

My only serious guess so far is to offset the taxes by deducting any losses from a sister company... I don't know!

 

[Cat Man Du]

Do you think that a for-profit corporation that makes several million dollars can actually get away without paying any corporate taxes?

We did it recently, and I'd like to share the basics with all of you, but I'm going to make you work a bit first. In fact, I think the final answer will be presented at this year's B&P.

Anyone have any guesses???

Real Estate ownership provides this perk! "Kio" pays no income tax and I don't either!

 

[bflbob]

Nope. The company is still holding the profits. No sister company in place.

 

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[bflbob]

Real Estate ownership provides this perk! "Kio" pays no income tax and I don't either!

Good guess, but this would work for pretty much any type of business.

 

[CarrieW]

do you have it all earmarked for growth in the upcoming year?

 

[MJ DeMarco]

depreciation, amortization and non caSh charges?

 

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[bflbob]

do you have it all earmarked for growth in the upcoming year?

Nope. Paid out the owner several million tax-deferred this year. Some via cash. Some via owner-carried loan to the company.

 

[bflbob]

depreciation, amortization and non caSh charges?

Nope. Nope. Nope.

Clue: The owner no longer owns the company, but he still controls it.

 

[kurtyordy]

Nope. Nope. Nope.

Clue: The owner no longer owns the company, but he still controls it.

my best guess is he put it into a charitable trust that he controls?

 

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[bflbob]

my best guess is he put it into a charitable trust that he controls?

Getting closer...but not a charitable trust.

 

[kurtyordy]

somehow sold it into a self directed retirement account?

 

[bflbob]

somehow sold it into a self directed retirement account?

You're on FIRE!

But it isn't a self-directed retirement account. It is, however, a retirement account of sorts.

 

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[EastWind]

is it legal?

 

[Russ H]

Nope. Nope. Nope.

Clue: The owner no longer owns the company, but he still controls it.

Hee hee.

Few see the magnitude of the Carnagie quote in my signature.

One way:

1. Accumulate years worth of losses
2. Take it as non-taxable profit when your biz does make money.

Another way:

Living Trust (there are several other ways to do this as well, like selling stock in the co and putting the $$$ in a tax-deferred account).

-Russ H.

 

[CarrieW]

ok so your not paying corp taxes but Id imagine that someone is paying a personal tax of some sort on it.

tell me Im wrong... please lol

 

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[kurtyordy]

You're on FIRE!

But it isn't a self-directed retirement account. It is, however, a retirement account of sorts.

sold it to the companies employee pension fund

 

[bflbob]

is it legal?

Very legal. One of the biggest expenses in this are the legal fees though.

 

[bflbob]

Hee hee.

Few see the magnitude of the Carnagie quote in my signature.

One way:

1. Accumulate years worth of losses
2. Take it as non-taxable profit when your biz does make money.

Another way:

Living Trust (there are several other ways to do this as well, like selling stock in the co and putting the $$$ in a tax-deferred account).

-Russ H.

Russ...you are targeting it well. Your last sentence hits close, but it isn't a Living Trust.

 

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[bflbob]

ok so your not paying corp taxes but Id imagine that someone is paying a personal tax of some sort on it.

tell me Im wrong... please lol

You are pretty close, too.

No corporate tax ever.

No personal tax immediately.

 

[bflbob]

sold it to the companies employee pension fund

I'm going to give you a big star for that one. :yourock:

Anyone ever hear of an ESOP?

 

[CarrieW]

ok not immediatley but when you actually recieve the money so that its personally usable by you, you pay tax on it. or your heirs will.

so it goes into a retirement fund of some sort that you can contiually purchase/spend/invest it tax free untill you make a withdraw/take distribution.

I have been thinking about how I may use some type of set up like this to use as a trading vechicle for my forex trading. I know you can do it somehow.

 

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[bflbob]

ok not immediatley but when you actually recieve the money so that its personally usable by you, you pay tax on it. or your heirs will.

so it goes into a retirement fund of some sort that you can contiually purchase/spend/invest it tax free untill you make a withdraw/take distribution.

I have been thinking about how I may use some type of set up like this to use as a trading vechicle for my forex trading. I know you can do it somehow.

I think you might achieve that by trading your Forex in a Roth IRA.

 

[Bond]

Here's your answer...

Why I gave away my company to charity | Derek Sivers

 

[bflbob]

Here's your answer...

Why I gave away my company to charity | Derek Sivers

Great story, but that isn't quite what we did.

In our case, the owner sold the company.

The best thing is that he owns controlling interests in several other companies.

By selling this one, we were able to eliminate "common ownership" issues with the others.

(For those of you who are unfamiliar, you have to provide similar benefits, you may share loss experience for insurance, and other similar issues if one person owns more than 80% of two or more companies.)

 

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[Bond]

Great story, but that isn't quite what we did.

In our case, the owner sold the company.

The best thing is that he owns controlling interests in several other companies.

By selling this one, we were able to eliminate "common ownership" issues with the others.

(For those of you who are unfamiliar, you have to provide similar benefits, you may share loss experience for insurance, and other similar issues if one person owns more than 80% of two or more companies.)

He also sold the company:

"A few months before the sale, I transferred the ownership of CD Baby and HostBaby, all the intellectual property like trademarks and software, into the trust.


It was irreversibly and irrevokably gone. It was no longer mine. It all belonged to the charitable trust.


Then, when Disc Makers bought it, they bought it not from me but from the trust, turning it into $22 million cash to benefit music education."


In the end i guess both owners got what they wanted...:coolgleamA:

 

[bflbob]

He also sold the company:

"A few months before the sale, I transferred the ownership of CD Baby and HostBaby, all the intellectual property like trademarks and software, into the trust.

Ah...I took it that his transfer was a donation, not a sale.

Good deal!

 

[bflbob]

I keep a chunk of my retirement funds in an operating company that I control via an ESOP. I rolled the retirement funds into the company's 401K Plan, and then used the 401K Plan to purchase shares. All profits are rolled back into my retirement funds, so much of the taxes on profit are deferred.

That said, the company requires that I actively participate at least 1000 hours per year in management activities, and I'm required to pay myself a taxable salary for that work, so I'm not able to get away with paying no taxes...

No minimum of hours required with this one. That said, the owner draws a very nice paycheck each week, and a healthy bonus at the end-of-year. Those dollars are taxable. But the profits of the company aren't.

The biggest thing for us was to go from a C-corp to an S-corp. Profits pass to the shareholder. The shareholder is the ESOP, which is a tax-free entity. No taxes are due until an employee retires and draws his/her benefit. At that time, the employee (only) owes taxes on the disbursement.

Better yet, when the owner sold the company to the ESOP, he got a (6-month?) window in which he could roll over his proceeds to buy stock of another company or similar investment vehicle. Sort of like a 1031 rollover in real estate.

 

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[Russ H]

No minimum of hours required with this one. That said, the owner draws a very nice paycheck each week, and a healthy bonus at the end-of-year. Those dollars are taxable. But the profits of the company aren't.

The biggest thing for us was to go from a C-corp to an S-corp. Profits pass to the shareholder. The shareholder is the ESOP, which is a tax-free entity. No taxes are due until an employee retires and draws his/her benefit. At that time, the employee (only) owes taxes on the disbursement.

Better yet, when the owner sold the company to the ESOP, he got a (6-month?) window in which he could roll over his proceeds to buy stock of another company or similar investment vehicle. Sort of like a 1031 rollover in real estate.

That's why I hang out here.

Muchos thankos, Bobbo. I owe ya one! (OK, maybe 2-- I've lost track)

-Russ H.

 

[Russ H]

PS Wanted to give you more rep speed, but I gotta spread the love around first!