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Tax Loopholes | CPA’s list

CPA demonstrates Tax Loopholes Wilmington NC

Gary Bode, CPA: if a legitimate tax loophole exists, exploit it. For a free phone consult call (910) 399-2705.

CPAs think of tax loopholes as an unintentional consequence of a tax law lowering your tax liability beyond what Congress intended. But the definition expands during political discourse and in internet chatter. Sometimes CPAs see loopholes develop by watching trends in tax court cases, keeping current with proposed changes to the tax code etc. Conversely, CPAs watch loopholes close as taxpayers take advantage of them and the IRS retaliates. As I present some examples, I’ll try to point out typical characteristics of tax loopholes that CPAs deal with. Here’s my list.

Operate your Business as an S Corporation

When working a tax loophole, CPAs often have to proactively structure the client’s affairs to take advantage of it. It’s legal, but no exact requirements exist. In this case, the loophole is S Corporation distributions to shareholders avoid self employment tax; let’s say 15% for conversational purposes, maybe more in 2012. Under certain conditions only. Here, an aspect of the tax loophole CPAs deal with; ongoing administration becomes a cat and mouse game with the IRS.

Starting a Business by Tapping into your Retirement Plan – ROBS

Ordinarily, early distribution from your pension plan incurs immediate taxation, plus a 10 additional penalty tax. But if carefully structured, the ROBS (rollover business startup) technique allows you to start a business with your pension funds, with no immediate taxation. Here’s another classic aspect of loopholes; loss of some freedom to maneuver. In this case you have to function as a C Corporation and pay careful attention to administration of the pension funds. For due diligence, read the 20+ ROBS posts on this website and call Guidant, a good ROBS setup provider. They’ll pre-pay $1,000 of ROBS CPA fees if you mention my name. You don’t have to use me to get that generous offer, but ROBS is my specialty.

Business SUVs

Ever wondered why you see so many SUVs on the road when gas is over $3/ gallon? The luxury car IRS limitations disappear when the company vehicle’s gross weight exceeds 6000 pounds. This demonstrates another typical aspect of tax loopholes CPA see: there is no true tax savings. With SUVs, the deduction just comes quicker. With a non SUV business vehicle, your company still (usually) writes off the entire cost of the vehicle, it just takes longer. If your business needs an SUV, great. But many businesses don’t, and they spend thousands more for a vehicle and then hundreds more a year to fuel it.

Make your Spouse an Employee of your Business

Another type of tax loophole CPAs see turn personal expense into business expense. Your spouse’s travel with you is deductible, under certain conditions, if they’re an employee of your company.

Child Care Tax Credit

Again this tax loophole turns personal expense into a tax deduction; if your kids qualify, and if you qualify. Summer day camps count as child care. Here’s another typical aspect of tax loopholes CPAs see. The tax benefit isn’t as great as it seems. The Child Care Tax Credit quickly diminishes under many circumstances.

Black Liquor

Here the tax loophole was an unintended consequence of promoting alternative energy sources. I imagine this loophole opened through heavy Washington DC lobbying. It stayed open for only a few years. Black liquor is a byproduct of paper manufacturing. These folks got a tax credit of half a buck per gallon. International Paper racked up $540 million by exploiting this loophole.

Tax loopholes should only be exploited if they make sense in your particular situation. Tax savings and turning personal expense into business sense are the main incentives.

I’m a CPA with a virtual office to accommodate our long distance and international clients. For a free phone consult, please call (910) 399-2705.

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