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I'm curious what the limits of this are. Say I create a business that receives $2000/m in contracting revenue instead of personal 1099 income. What if this bus
by 14u2c 5y ago
I'm curious what the limits of this are.
Say I create a business that receives $2000/m in contracting revenue instead of personal 1099 income. What if this business then acquires a property with a $2000/m mortgage and in turn rents that property to me for $1/mo. As all revenue is consumed by expenses would the business not be taxed? It seems like there has to be a reason why this strategy can not be used to avoid tax on all personal expenses?
- jonas21 5y agoWell, you're in luck! The IRS has prepared a 56-page document on just this topic [1]. The summary on page 3 is: > To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary. Your particular example with free or below-market rent would almost certainly be considered tax evasion -- in fact, I believe this is one of the things that Allen Weisselberg is charged with [2]. [1] https://www.irs.gov/pub/irs-pdf/p535.pdf https://www.irs.gov/pub/irs-pdf/p535.pdf [2] https://www.bloomberg.com/news/articles/2020-11-02/trump-perks-for-weisselbergs-included-free-rent-tax-preparer https://www.bloomberg.com/news/articles/2020-11-02/trump-per...