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  #1 (permalink)  
Old 12-18-2007, 12:06 AM
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deductions + insurance

hi, i was reading a book on the things i can deduct under a S corporation. i read that i can do what is call gift-leaseback where i create a trust under a ralative name and i give my computer, car, desk to the trust and lease it. this can be deductable since i am leasing. does anybody knows about this? can somebody tell me how do i go about doing this?

also, i have my corp setup in NJ and im the only owner(employee). by law, worker compensation insurance is required. i feel it is a waste of money. in NY this is not require if you are the only employee. if i change the address of my corp to NY and file for permission to work in another state(NJ), will i still need worker compensation even though my corp is now in NY (no insurance req) but i work in NJ(insurance required)



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Old 12-23-2007, 05:14 PM
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I am not sure why you established an S corporation, first of all you will have to pay an annual filing fee of $500 and secondly, you will be subject to salary problems subject to Workers Compensation issue.

"Workers' compensation insurance is a state-mandated insurance requirement for most employers, in almost every state. In the State of New Jersey, unlike some states, New Jersey law generally treats officers of a corporation as employees who must be covered by workers' compensation". So, you are right that unfortunately, you will be subject to Workers Compensation Insurance.

If you move your corporation to say New York, then doing business in NJ would not help you much, in that you would still be required to have NJ Workers compensation for he officer would be employed in NJ! If it was that simple all single member owners of 'S' corporations would register to NY state or for that matter a state other than NJ.

The solution in my opinion is to re-examine the premise of remaining an S corporation, assuming the Workers Compensation is a major financial burden to you, and consider becoming a new Limited Liability Company. This would save you from the Workers Compensation problem and the annual filing fee problem.

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Old 12-26-2007, 12:42 PM
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Hi, thanks your your response. it was very helpful. i didnt know which one to get. my cpa was the one who told me that it was better to form an S corporation. he didn't even tell me about the worker compensation. i asked him about llc and he say that S corporation was better.

this is what he said:
"Members who are active in running a LLC need to pay employment tax on their earnings. S-corporation owners have the option of paying lower wages and more in distributions. This can save thousands of dollars in employment taxes. In my view, this is one of the biggest factors favoring the S-corporation"

anyhow, if i changed to an LLC can i use the home-office for deduction?
i guess i don't have to pay for worker compensation with an LLC as per your reply below. correct? and i don't have to pay annual filing fee? correct?

when you say annual fee, does that mean 1 year from the date i form the corporation or during the tax year? for example, i formed mine in nov 18 2007. does that mean that i will pay $500 in april 2008 for nove 18, 2008? thanks again

Quote:
Originally Posted by TaxGuru View Post
I am not sure why you established an S corporation, first of all you will have to pay an annual filing fee of $500 and secondly, you will be subject to salary problems subject to Workers Compensation issue.

"Workers' compensation insurance is a state-mandated insurance requirement for most employers, in almost every state. In the State of New Jersey, unlike some states, New Jersey law generally treats officers of a corporation as employees who must be covered by workers' compensation". So, you are right that unfortunately, you will be subject to Workers Compensation Insurance.

If you move your corporation to say New York, then doing business in NJ would not help you much, in that you would still be required to have NJ Workers compensation for he officer would be employed in NJ! If it was that simple all single member owners of 'S' corporations would register to NY state or for that matter a state other than NJ.

The solution in my opinion is to re-examine the premise of remaining an S corporation, assuming the Workers Compensation is a major financial burden to you, and consider becoming a new Limited Liability Company. This would save you from the Workers Compensation problem and the annual filing fee problem.


Last edited by erod77 : 12-26-2007 at 01:03 PM. Reason: forgot to add something


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Old 12-27-2007, 10:36 AM
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I really don't want to 2nd guess your CPA, but there are many tax advisers still advising clients to form an S Corporation. The debate is still raging out there, and it really depends on the facts and circumstances at the time of your meeting with your CPA.

He is right about S Corporation comment, in that they can save Self-employment taxes. But, the recent Bill by Charlie Rangel is going to put a stop to that, if the Bill becomes Law! You can refer to the several articles that I have posted on the S Corporation Link regarding Unreasonable Salaries. To some extent, the S/E Tax issue advantage is not going to be as attractive in the past, given the increased IRS scrunity in this area.

Regarding your questions;

1)"anyhow, if i changed to an LLC can i use the home-office for deduction?".
You can claim a home office deduction irrespective of an entity classification.

2)"when you say annual fee, does that mean 1 year from the date i form the corporation or during the tax year? for example, i formed mine in nov 18 2007. does that mean that i will pay $500 in april 2008 for nove 18, 2008?".
Yes, you will be subject to the annual minimum tax of $500 for tax year 2007, even if you did not engage in any trade or business.

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Old 12-31-2007, 12:01 PM
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thanks for your help. i will read more about llc and ask my cpa. so by forming an LLC in NJ, i don't have to pay annual fee and worker compensation?

how about something call gift-leaseback trust. i heard you can create a trust on the name of a relative, give your car, computer, desk etc to the trust and lease it back from the trust. this can save you something money. do you know about this and how i set one one? thanks again

Quote:
Originally Posted by TaxGuru View Post
I really don't want to 2nd guess your CPA, but there are many tax advisers still advising clients to form an S Corporation. The debate is still raging out there, and it really depends on the facts and circumstances at the time of your meeting with your CPA.

He is right about S Corporation comment, in that they can save Self-employment taxes. But, the recent Bill by Charlie Rangel is going to put a stop to that, if the Bill becomes Law! You can refer to the several articles that I have posted on the S Corporation Link regarding Unreasonable Salaries. To some extent, the S/E Tax issue advantage is not going to be as attractive in the past, given the increased IRS scrunity in this area.

Regarding your questions;

1)"anyhow, if i changed to an LLC can i use the home-office for deduction?".
You can claim a home office deduction irrespective of an entity classification.

2)"when you say annual fee, does that mean 1 year from the date i form the corporation or during the tax year? for example, i formed mine in nov 18 2007. does that mean that i will pay $500 in april 2008 for nove 18, 2008?".
Yes, you will be subject to the annual minimum tax of $500 for tax year 2007, even if you did not engage in any trade or business.



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