Who pays taxes on benefits?
Category: Business and Money > Accounting
Asked by: azon-ga
List Price: $15.00
08 Jan 2004 22:01 PST
Expires: 07 Feb 2004 22:01 PST
Question ID: 294640
Yes, I do know that I need to speak with a professional, and I am planning on doing that, but I need some information for planning purposes. Background: My wife and I are the only two members (read owners here) and employees of an LLC. I would like to make our incomes minimal for the foreseeable future (we really don't spend that much anyway!) I want to have the company pay for a lot of things like, an auto lease, insurance on said auto, living allowances, as well as educational costs (for example lessons that will help improve our level of service to our customers). The company will also be paying for more common types of things like health insurance and life insurance. My Question is this: Does any party (the business or ourselves) pay any taxes (income and/or payroll like FICA etc) on the value of these benefits? If so at what rate? Good links on the subject so I can get a handle on the topic would be appreciated, but not necc. 100%+ tip for thorough answers that don't include too much jargon that non-accounting types like me wouldn't necc understand. Thanks much.
Re: Who pays taxes on benefits?
Answered By: majortom-ga on 09 Jan 2004 07:21 PST
Deductibility of fringe benefits for owners of the corporation is one of the historical advantages of a C-corporation over the LLC or S-corporation. Deductibility of non-health-insurance fringe benefits may still be slightly superior for C-corporations. However, deductibility of health insurance benefits for LLC owners, S-corporation owners and sole proprietors has been phased in, reaching 100% in tax year 2003. If health insurance deductibility for you and any co-owners is your main tax concern regarding LLCs, this is very good news for you. You may also elect to have your LLC treated as a regular C-corporation for tax purposes if you require deductibility of some other types of fringe benefits. However LLCs have other tax advantages unrelated to benefits which often offset any benefit you might gain with regard to deduction of benefits. This information is drawn from my personal experiences as a small business owner, and also from the CCH Business Owner's Toolkit, which I recommend as a source of more complete information. Of course, as you have yourself suggested, consulting a professional is crucial before making a final decision. CH Business Owner's Toolkit | Fringe Benfits: http://www.toolkit.cch.com/text/P12_4925.asp
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Thank you som much for your quick answer and response to my comment. Have a prosperous year.
Re: Who pays taxes on benefits?
From: majortom-ga on 09 Jan 2004 19:35 PST
A C-corporation gets the most favorable treatment when it comes to deducting expenses of various kinds, yes, but IRS rules have moved in the direction of allowing LLCs and S-corporations to deduct health insurance expenses of owners which are the most commonly encountered issue. Of course there is no way to guarantee that you can deduct "all fringe benefits;" if something is not truly 100% a business expense, there is always a possibility that the IRS would disallow it during an audit. The purchase or lease of an auto in your own name cannot be written off by the company; the company may or may not have the credit to obtain a lease directly; personal commuting expenses cannot be deducted. It is possible to write off the percentage of the interest (not the principal) on an auto loan that is attributable to business use of the vehicle, if you keep thorough records of business versus personal use. $50,000 is the limit of the life insurance benefit covered by the payment you wish to deduct; the portion of the payment amount above that would not be deductible.
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