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Strategies & Market Trends : ahhaha's ahs -- Ignore unavailable to you. Want to Upgrade?

To: ahhaha who wrote (3149)	10/17/2001 10:37:58 PM
From: Mark Adams	Read Replies (2) \| Respond to of 24758

That's tax evasion. No doubt a few do it, but 99.9% don't. They just pay and pass the cost onto you. Ok, you insist. Let me give you an example. You are about to start ABC corp. You intend to finance the corp with personal assets of 50k. This equity will eventually be matched by external funding, ie bank notes or SBC financing, but that is moot. You have two choices. You can invest 50k in your business, and take out shares representing contributed capital. Or you can loan the business 50k with a note payable issued to you. Now, 4 years later, your business is throwing off 15k/year income. You can extract that flow by repaying the note, with no dual taxation, as the flow of funds is not dividend, but repayment of the note. Further, the interest income is not subject to FICA. So the characterization of the income is alterated from ordinary income taxed at the highest possible rate in our present system to passive income taxed at a lower rate. Only by carefully considering how you are going to extract the capital (exit strategy) can you prevent simple mistakes that cost you later in higher taxes. Another example- Oregon has a personal property tax for business equipment. Jane Doe wants to set up a corporate structure. She contributes her office equipment (computer, postage meter etc) valued at 10k. The following year, she has an ugly form to fill out to compute the personal property tax due. If she had only leased the equipment at fair market value to her business, she could have deducted the business loss against her ordinary income (though technically should have include the rental income elsewhere). The important aspects of this transaction is the avoidance of an additional personal property tax and the recharecterization of ordinary income her business owning the equipment would have thrown off into rental income. I'm not an attorney nor a cpa, so don't try this at home without the appropriate advice. But these are examples of how an individual can structure a new business entity correctly or incorrectly resulting in substantially differing tax burdens. And it is legal to work within the proscribed rules to avoid, not evade taxes. You still haven't addressed a basic issue. If your clients are so wounded by corporate taxes, then why the heck do they choose that structure? This is free market at it's finest. If corporate taxes were destructive, then why are there so many corporations?

To: ahhaha who wrote (3149)	10/17/2001 10:44:07 PM
From: Mark Adams	Respond to of 24758

I challenge that they do work. They cause a great deal of resources to be misplaced, cause decisions about operations to be altered to inferior ones, cause personal duress as principles are culpable, all in an attempt to get more to lead a better life. What is the point? So they spend their lives living in a hell of their own creation in order to live better. I am not stretching anything here, because I've seen it, and I've seen it only in real estate where all the shenanigans you mention exist aplenty. We certainly agree on that! What is core of this discussion? Corporations should be taxed so that someone doesn't get away with something, but according to your own assertions, corporate tax causes people to engage in all kinds of shenanigans none of which work very well at the best. So what is it that "they" are getting away with? No, I merely assert that being taxed inside a corporate shell seems to be preferred by some individuals. Taxes deferred are very much in vogue- the longer the deferral, the better. (ie Section 1031 exchanges). Pre tax law change, some taxes could be eliminated completely by passing on to heirs at a stepped up basis. In fact, this claim, "Income transfer in the form of rents may be treated at tax time differently than income thrown off by the active operations or salaries", is fraud since it is explicitly intent to deceive and the owner will be audited monthly. This gets into the controlled holding group stuff, I expect. There are other gotcha's, ie the Personal Holding Corp and Professional Service Corp that can trap the unwary. Both are documented in the book I mentioned. Along with some additional examples of how to structure businesses to maximize returns and minimize liabilities. I challenge your hotel owner scheme of creating entities with presumably different taxing status in order to evade taxes. There's no study needed on my part. I want you to demonstrate precisely the validity of that example. I have a strong suspicion that you don't know the realities of such constructs. Anyone trying to set them up is a fool. At best they misallocate resources and cause less return over time. Well, you should take a look at the real world hotel entities, ie Starwood and Marriot. It's quite common to have an operation company (MAR) running the hotels leased from a REIT that owns the property (HMT) (see also HOT and SFI, a mortgage REIT). All legal and above board.