12 Tax Strategies – Using Shelf Companies Wisely

Diane Kennedy and I just completed a webinar on 12 Tax Strategies for 2013 Tax Savings. The replay is available for a short time over at www.ustaxaid.com/12strategies. Most of the strategies are very time-sensitive, so if you want to move forward, now is the time to contact us.

This week I wanted to talk more about these strategies and answer some of the questions from participants we didn’t get to on the call. If anything you read this week brings on another question, please ask away!

Using a Shelf Company Effectively

Yesterday I talked about how a retroactive S or C Corporation election can help to save tax. But that only works for people who have an existing LLC. What if you didn’t even get that far, and started 2013 with an unincorporated business?

Well, you can’t turn the clock back to January and incorporate a business with a retroactive start date. But you do the next best thing, and buy a preformed business that was created in January, or even earlier.

Pre-formed businesses are also called shelf companies, mostly because they were historically created by law firms, and minute books were prepared, that then sat on the shelf in the records room. I used to do them all the time, back in my law firm days.

These days, I still create shelf companies, only now I keep them in a folder in my filing cabinet.

Once you have bought a shelf company, you can go back to Strategy 10, and make that election, set up a payroll, and recode your business events into your new business structure.

The difference between using a shelf company that was created in January of 2013, or even in 2012, is that you can then recode all of your 2013 income into the company. You can create a payroll based on all of calendar year 2013. But if you were to go and incorporate something now, you can’t recode all of your 2013 income into it. You can only attribute income happening from incorporation date to the end of this year to the company. The rest of your 2013 income will have to go through a Schedule C, which brings you back to that self-employment tax issue.

Over the years, we’ve had clients save thousands using a combination of Strategies 10 and 11. But it is something to move on right away – these strategies are only good if you have enough time to implement them.

Question: How much does it cost to buy a Shelf Company and where can I get one?

Answer: Why not start by contacting us? We have a number of pre-formed shelf companies available for sale, starting at USD $1,200.

Question: Are there any hidden issues with Shelf Companies to be aware of?

Answer: Yes. As with so many other things, buyer beware! For example, the first question you want to ask is whether or not the shelf company has been used by someone else. That’s not uncommon – someone starts a business, it fails, and they forget to close it out with the state. So in theory, that business could be sold to someone else, who would be getting all of this history. And that’s also the problem. When businesses fail, they can leave a trail of unpaid bills and bad information out there on the web or elsewhere. Are you buying a problem? What if someone tries to sue you as the new owner of the business for an old debt?

At Smart Business Incorporation, we specialize in helping investors and business owners develop structures to run their businesses, protect their assets and keep as much of their earnings as possible. If you want to know how to best structure your next business, visit our website or drop us an email at info@smartbusinessincorporation.com. We’ll be glad to help.

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