Q:

Subject: incorporating

I am sure this is your busy time of year but I have a couple of questions.

 

My sister and I are about to receive income from an invention or sale of a patent (probably just dreaming).

 

If we incorporate can we buy a property on a lake as a corp headquarter, stay there, have meetings there, and conduct other business (while enjoying the stay), all paid with corporate income?

 

I am retired and she has regular income.

 

Should I seek a financial advisor before doing anything and how expensive are such advisors?

A:

This is definitely something that you need to work with a competent professional tax advisor.  Whatever it costs will be tiny compared to the costs of screwing everything up by trying to do it all without proper counsel.

As with all tax issues, the burden of proving something is a legitimate tax deduction is on you.  If your corp buys a property, you will need to be able to prove that it is being used exclusively for corp business, or have some kind of reimbursement plan or W-2 income reporting policy for purely personal uses. 

You should also keep in mind that the cost of business real estate, except for land, has to be depreciated over several years, as long as 39 years.  Land can't be depreciated at all. 

A very common mistake by business owners is thinking that all they have to do is deplete the business bank account and then there will be no taxes due.  For example, if your corp were to receive $950,000 in royalty income and then you spend every penny of that money on a nice place by the lake, you would still have a very large taxable income, and no cash available with which to pay it.

A good tax advisor can help you with this kind of thing, as well as the multitude of other issues that could cause unforeseen problems.

Good luck.

Kerry Kerstetter

 

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 3/01/2006 10:58:00 AM Send this post: