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Is this legal?


VooDooPC

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My boss is the owner of the company I work for. When his business expanded he needed a larger building. He took money out of his company and bought a new building in HIS name. He then moved his company into that building. He now pays himself "rent" each month from the company to himself. He doesn't pay for any maintenance or bills for the building out of his pocket, all of that is done with the company's money. The only thing he does is collect this "rent". He still actively works at the company on a daily basis. Is this legal?

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Since he owns the building and the company, can't he decide the rent will be as much as he wants and take it right from the company?

I imagine so....but he would have to pay the tax on it as income, so I would imagine that it's dancing on a fine line. And if he ever did get audited...It probably wouldn't be to his advantage to show that he his paying/collecting way more than a reasonable market value.

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Our company actually got audited earlier this year and it did turn out he was taking money from the company tax free. He claimed it was an accident and had to file a 1040X. I don't know if he got fined or anything beyond that.

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urgh... discussed this over lunch with colleagues, and you guys are right... running your own business allows you to do things middle class citizens would view as illegal like charging gas, food, etc as a business expense and getting extra tax exemptions, etc...

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Recently, we've had an audit, one of the question we discussed over was sort of a similar case (equipment instead of immovable). And the answer was, yes it is legal, however if one (owner of an asset) doesn't properly file it to IRS, then maximum what he is gonna face is a fine. But if this goes for years and years, it might be a bigger issue.

I'm not an accountant.

Edited by walkingCat
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Perfectly legal. I'm not sure what the problem would be with this; if he owns the company, the rent it's paying him is coming out of his own money.

But it's not HIS own money, it's the company's money. Just because he owns the company I don't think that automatically makes every cent that comes in his. I have no idea how much he pays himself as a salary but he's probably getting another $1,000+ on top of that a month because he bought the building in his name. I just think it's dirty that you'd be paying yourself from your own company how ever much you want for no other reason than having the building in your name instead of in the company's name. It sounds like someone just said, "How can I get more money for doing nothing?"

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being dirty doesn't make it illegal, and having money makes it easier to make money.

 

i'm not a lawyer, but in a privately owned company where he's the only owner, it is his money. how he transfers it between one entity to the other (ie, giving himself the money to buy the building, how he's paying rent) makes all the difference in the world. done appropriately on the books, that's legal. done wrong, it's embezzlement.

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How would it be any different if he bought the land under the company's name (ignoring his tax scheme for a moment)?

 

I think you just realized why you should start your own company, VooDoo (don't call it VooDooPC, I think that's taken in some way).

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Look at it this way:

 

That money for building leasing was always going to go towards leasing, he's not "taking money from the company" every month. If he didn't own the building, presumably an equal amount of money would still be coming out of the company to pay for the space.

 

Also keep in mind that the monthy amount is not all going directly into his pockets. As the building owner, he is paying for maintenance, utilities and potential loan payments to pay for the purchase of the building. Since the company is HIS company though, any revenue brought in that isn't going to business expenses such as inventory and payroll would be his money to do with as he pleased anyway. I know the idea of taking money from a company to make a seemingly "private" purchase of property that is then leased back seems sketchy. but in the end all he's really doing is shuffling money around in a manner that makes a difference in his tax burden.

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I don't really know a lot about the US Tax Law, but in Belgium this is considered (legal) tax evasion, because transferring profits your company made to yourself is taxed at 21%. If you set up a fictional system which replaces those payments with rent in this case, they calculate your taxes like this:

 

Market rent price for that building: not taxed

excess above that: converted to payments, taxed at 21%

 

So it's not illegal (in Belgium), but they recalculate your taxes with those numbers in mind.

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If he's getting the money either way from the company either from rent or salary, the only benefit I see of owning the building is if you sell the company you can still collect the rent without doing anything. I don't see any other reason.

 

Also keep in mind that the monthy amount is not all going directly into his pockets. As the building owner, he is paying for maintenance, utilities and potential loan payments to pay for the purchase of the building.

 

The monthly amount is going directly into his pocket, any maintenance or utilities is paid for by the company. It's not like if something is wrong with the plumbing he finds a plumber and then pays him out of his pocket, he'll write a check from the company to the plumber.

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I don't really know a lot about the US Tax Law, but in Belgium this is considered (legal) tax evasion,

 

Not sure if Belgium counts as you guys didn't even have a functioning government for like four years, not to mention your taxes :P

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he pays taxes from his personal money and pays corporate taxes on his business. Personal taxes are less so he probably saves himself a few grand doing it this way. If it was someone else's company he would be embezzling, but because it is his company mind yo business lol

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I don't really know a lot about the US Tax Law, but in Belgium this is considered (legal) tax evasion,

 

Not sure if Belgium counts as you guys didn't even have a functioning government for like four years, not to mention your taxes :P

 

'The great Belgian government shortage' didn't impact our tax system, which is one of the most complicated and complete in the world :biggrinpimp:

 

And even if that were not true, BELGIUM ALWAYS COUNTS. We're about to seize the world, you guys just don't know it yet.

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Member
(edited)

If he's getting the money either way from the company either from rent or salary, the only benefit I see of owning the building is if you sell the company you can still collect the rent without doing anything. I don't see any other reason.

 

Also keep in mind that the monthy amount is not all going directly into his pockets. As the building owner, he is paying for maintenance, utilities and potential loan payments to pay for the purchase of the building.

 

The monthly amount is going directly into his pocket, any maintenance or utilities is paid for by the company. It's not like if something is wrong with the plumbing he finds a plumber and then pays him out of his pocket, he'll write a check from the company to the plumber.

 

Again, while what you are saying is true, fundamentally it is still "his" money, as he owns the company. The service is either being paid for by the company or the building owner - the owner is either paying as the landlord out of his own pocket (with money he earned from his company) or is paying through the company with money he simply hasn't given to himself as personal payment. The upside for the owner is the lease payment is no longer going to someone else, but rather is going towards a property investment of his own. In the end, the owner IS coming out ahead, but not in a strictly cash sense.

 

My head hurts now. This all makes sense to me but it's hard to type it out in coherent thoughts.

 

 

And even if that were not true, BELGIUM ALWAYS COUNTS. We're about to seize the world, you guys just don't know it yet.

 

I, for one, welcome our new Belgian overlords.

Edited by boiler
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