June 15, 2018
Fringe benefits are usually a good thing—but there’s a catch when you own more than 2 percent of an S corporation. The good news? Federal tax law allows the cost of these fringes as deductible expenses for your S corporation.
The bad news? You, the shareholder-employee who owns more than 2 percent, may suffer additional taxes on some of the benefits because the tax code requires your corporation to put selected benefits on your W-2. The outcome is sometimes favorable and sometimes not.
Here’s the ugly rule that causes this problem. Under the federal income and employment tax rules for the most popular fringe benefits, tax law treats the more than 2 percent shareholder-employee of an S corporation as a partner and denies the benefits. And—we know you are just waiting for this—there is more bad news: related-party stock attribution rules apply to the S corporation.
Under the related-party rules, tax law says that your spouse, parents, children, and grandchildren own the same stock you own—and if you employ them in your S corporation, their fringe benefits generally suffer the same ugly fate as your fringe benefits.
Who says year-end tax planning has to be difficult? If you know the tax law inside out (and we do!), there are easy steps you can and should take right now that will cut your tax bill big time. What money-saving strategies can you put to work in the final days of December 2018?
Here are a few key tax-related deadlines for businesses during Q1 of 2019.
Your rental properties can provide a valuable tax shelter when you deduct your rental losses against other income. One important step to take if you want to deduct your losses is to pass the tax code’s 750-hour test. It's one of the ways taxpayers get to prove that they are real-estate professionals.