beginner Q: how to minimize taxable income

[newbuz]

As a soon to be small C-corp owner, how can I minimize my taxable income to 0$ or negative$? I want to invest all revenue into depreciating/appreciating expenses.

Do many companies spend all their revenue on expenses to delay taxes? If so, in the years after.. will the losses from double tax (capital gains+dividends) outweigh the shorter term savings? What are your thoughts on this?

Also, since I am new and trying to go for 0$ or negative$ each year, would there be more advantage to an S corp or LLC than with the C corp that I'm heading towards? I did not make C corp yet, but probably will soon.

thanks!

[Freelancier]

You probably should go visit a (tax deductible!) accountant instead of getting that kind of advice from a free forum.

Most companies try to earn a profit and then distribute some of that profit to shareholders (as dividends), leaving enough in the company to protect its viability and growth prospects. Why did you choose C Corp over S Corp?

[newbuz]

Risks of S-Corporations
The IRS tends to take a closer look at S-corporation returns since the potential for abuse is so large. For example, if you make $500,000 in one year but only designate $20,000 of that as salary income, you might trigger an IRS inquiry, since you are avoiding so much self-employment tax. The guiding principle is that you must designate a "reasonable" amount of your income as wages, rather than a distribution. What constitutes "reasonable" can often be a gray area, but if you push the envelope too far, you put yourself at risk for an IRS audit and potentially penalties and interest on any back taxes assessed by the IRS.

What would happen to the other 480,000$ in that example!!?

Yes, I will get tax accountant soon.

[tallen]

The $480,000 in that example would be taxed as dividend income to you, but because dividends are taxed differently than salary and wages, the IRS wants to make sure that your S-corp is paying you an appropriate salary or wage first before paying you any dividends (just re-stating what is in the quote you cited).

[newbuz]

The $480,000 in that example would be taxed as dividend income to you....

if it was a c-corp and they payed out 480,000 in dividends, it would be doubly taxed?

[tallen]

if it was a c-corp and they payed out 480,000 in dividends, it would be doubly taxed?

That's my understanding, and one of the reasons many small businesses that choose to incorporate and are eligible to, elect S-corp status. There is also a bigger on-going paper-work burden with C-corps which is a bit of a hassle for small or micro corporations (thus the S-corp).

[newbuz]

with c-corp it seems like catch 22:

if you cash it out as a dividend you are doubly taxed(on the corporate dividend + personal capital gains)
versus
if you hold it as surplus you get taxed 39.9%, and then have to pay the double tax years later too..

so it is like double tax for immediate dividend versus triple tax for saving the money? this can't be right...

[huggytree]

for a small business I found the S Corp to be better

I always think of C Corps as large businesses with 100+ employees

the only way I ever found to save on taxes is a SEP IRA......as long as your a 1 man business or like me a union shop where employees get union retirement and aren't eligible for my company SEP it works very well.....at the end of each year I always look for the dollar amount that gets me the most bang for my buck...you can hide a large % of your income

ive searched and searched for ways to minimize taxes...ive never found anything

I do have friends who look for seminars in FL and book their Disney vacations around them.....I haven't gone that far yet

[huggytree]

You probably should go visit a (tax deductible!) accountant instead of getting that kind of advice from a free forum.

?

maybe he prefers free advice from complete strangers than paying $200 to an accountant?

when he gets audited he can say to the tax man 'but on smallbusiness.net they said I could deduct that!''

[newbuz]

Yes, I should see an accountant, I don't know anything about this.