In the next few days I am going to talk a little about rebate credit cards. These cards give you rebates based on how much you charge on your credit card. You can get points that pay you cash, give you giftscards, can give you discounts on restaurants, golf equipment, vacations, etc. They sometimes have an annual fee and the interest rate may be higher than a normal card (to help pay for the rebates). If you use them right (especially if you pay off your balance every month) they can be found money and a way to generate cash savings or discounts on stuff you already use.
Brian’s Tax Musings
To expand on yesterday’s topic of corporate taxation of constructive dividends:What can you do to avoid a constructive dividend and the double taxation that comes with it?1. Document any loans to the corporation with a payback schedule. There will have to be interest but with the low rates today it shouldn’t be much. Then you can repay the loans tax free. Document in the corporate minutes.2. Take salary. Not the best option, but all owners and officers should take salary anyway. The corporation get the deduction for the salary and no double taxation occurs. You do have payroll taxes to pay.3. Pay rent to the owner for the corporate office. If you have a building or a room the corporation uses for an office you can reduce corporate earnings plus not have to pay payroll taxes on the money distributed. 4. Make sure the corporation reimburses the owners for all business expenses they pay. Set up an expense reimbursement form and put in corporate file for tax purposes.5. Set up a corporate retirement plan. You will have to include some or most of your employees in this but there are ways to set up to maximize key people and officer [...]
Brian’s Tax Musings
If you run your business through a corporation, make sure you treat it as a separate entity. Treating the corporation checking account like your own can lead to a lot of trouble. The IRS and the tax court have treated taking money to pay personal expenses as constructive dividends when the money is just taken without any corporate documentation. This can be a significant hit because of double taxation – the dividend is income to the owner and not deductible by the corporation. Tomorrow I will talk about ways to minimize the tax hit when your corporation makes money.