Let's say a company buys a property for $5million, then sells it to the employee for $1. Could the company write off the property as a loss of $5million and the employee avoid paying income tax? Or is that illegal avoidance? Just a crazy idea I had to avoid paying the 39.35% top tax rate.
No. If it was that easy, then everyone would be doing it. Government first started going after companies for allowing their employees to use "company cars" and then recently started cracking down on free lunch programs at work. It's ridiculous. I get free water, toilet paper, snacks, gym, massages, heating / air conditioning, internet / tech, and other benefits at work...are they going to tax that too?
I think it will depend on whether the government considers it as an arms-length transaction or not. If it is, then no taxes and if it is, then it's a taxable benefit for the employee and a transfer for the company.
the employee has to declare it as income. A real life example is a company car or perks like a country club membership. Or becoming a partner in a law firm.
%% Exactly. IF one like to read , a tax lawyer book can be a fun helpful read. But pretending a multimillion property is worth $1 is a good way to get a nasty audit. And the tax form used to ask ''any trades or barters/ ??''they see you coming. Roth/back door roth can be a good idea.....................................................LOW tax states can be a great idea/plenty of people vote with their feet, especially away from CA\NY
Or non-business flights in the company airplane or even letting an employee stay in a vacation rental for free or less than market rate. To the OP, if you could do that not only would you be doing it for your arm's length employees but if you own your own company you are often also a W-2 employee so you could pass all your company's profit to yourself tax free. In reality it's almost always a bad idea to do a payment in kind setup because it's so easy to second guess the value of what you provided. In my mind it's not worth the hassle of the extra audit risk or the extra pain when an audit comes. It's easier to just pay the employee the extra money and they can go buy whatever the thing is you were going to buy for them, it nets out exactly the same tax wise if you're doing your taxes correctly.
Thanks for the replies. I did not think it was realistic, but it was an idea I had lol. A more realistic question: If I bought a 2 BR condo, could I used the entirety of the Master Bedroom/Bathroom/WIC as a home office? Or just the bedroom portion? Also, would a W2 trader employee be able to do this or just a 1099 trader?
To qualify for a home office, the area in question must be used exclusively as an office. So the answer is potentially yes, if the closet space and the entire bedroom are used only for trading. In the old days when traders and other business people had mountains of paper records, it would have made sense to use the closet as a storage space, e.g., filing cabinets. With everything in digital format, I think it would be harder to justify today, unless you are using the closet as a dedicated secure space for a server or backup computer. If you get audited on the home office, an IRS agent will actually visit your home, or they will ask for photos. The real point is that if you do this, you better not have a bed or dresser in your home office, and you better have a bed and dresser in a different bedroom. The bathroom is more subjective. You would have to take the position that you only use that bathroom while you are conducting business in the home office. It would be an easier sell if the home office was for someone like a financial planner, an insurance agent or a psychotherapist who actually meets with clients in the home office, because then you have a dedicated bathroom for the clients, so you can keep them out of your personal living space. The short answer is no, because the home office deduction for employees was effectively eliminated a couple years ago. Most unreimbursed employee business expenses are no longer deductible, under rules that went into effect at the beginning of 2018. What might work is to have the S corp rent the space, so it would be deductible as an expense on the corporate tax return. But that is what is known as a self-rental, when a corporation rents property from one of its shareholders. The rules are complicated, and you have to charge fair market value rent. And the rent becomes taxable to you as rental income on your individual tax return. That might neutralize any real benefit, because the expense on the corporate tax return will not reduce your salary. As a working shareholder, you still have to get reasonable compensation, i.e., a minimum salary that reflects the work you are doing. So the rental expense would only reduce the investment income that flows to you on the Schedule K-1. It could work against you. You could end up paying tax on the rental income, at regular income tax rates, instead of having the income treated as qualifying capital gain on the K-1. The real solution is probably to have the corporation reimburse you for the cost of your home office. With that approach, it is a deductible expense for the S corp, but it is not income for you. But it has to be an accountable expense reimbursement plan. You have to explore this carefully with an experienced accountant. https://proconnect.intuit.com/articles/home-office-deductions-expenses/ BMK