TAX Info

[buckeye88us]

This was emailed to me from a friend who is also invested in the dinar.

Today I call the IRS to try to get answers directly from the horse's mouth concerning "How the profit derived from the appreciation of the foreign currency I have held over a year, as an individual, when exchanging into U.S. Dollars, here in the USA" should be classified on my tax return.

Should the $4,000.00 be "Simply a non-taxable event as a currency exchange, Ordinary income or a long term capital gain?"

I called the IRS number per www.IRS.gov:

Telephone Assistance for Individuals:

Toll-Free, 1-800-829-1040

Agent XXXXXXXXXX listened and sent me to:

Capital gains area questions.

Agent XXXXXXXXXX listened and sent me to:

Ordinary income area questions.

Agent XXXXXXXXXX listened and sent me to:

Complex issues area questions.

Agent XXXXXXXXXX listened and sent me to:

Advanced tax law area questions

Agent XXXXXXXXXX listened and said:

"This is an 'Out of Scope' question and I should seek competent Private Tax help." I than asked if this was the IRS and would this not be the place for the 'Most Competent' tax help? I then was told "They are not trained to answer this question and could not help me" and she was sorry but "Seek competent private ect. etc."

When I said "A private person did not make the regulations covering this question nor would they enforce the regulations ... could I please speak to someone that should or could have the correct answer?", I was told I "was at the last area for this type question" and the only answer is .(you guessed it) "Seek competent private etc. etc."

I then said " The IRS.gov 'search' doesn't have the answer and you don't have the answer, could I go to the local Phoenix IRS office with this question" and was told "They most likely would contact this area as well ... and would be told the same thing". and you would again be told to "Seek competent private ect ect".

I said ... one more question ... "What if the 'Competent private tax help' is wrong?" She then said "Well ... you sign the tax form and that makes you responsible."

I started to wonder if I just reached a lazy agent ..... so I tried the call again. The only thing different the second time was I went to the Income area before being sent to the Capital Gains area.

I think I'm going to send the same question to John McCain's office in Washing ton and hope it does not get lost. I'll see if they can get a better answer than I can from the IRS.

I know the 'Competent private tax' person that prepares the tax form and signs it with me .... but he will not pay the fines and extra tax ect.

There seems to be no easy answer .... but I'll keep you all posted.

WatchMan

Brought this over from last thread.

WatchMan,

I feel your pain. I tried the same thing but revised my search in the IRS with a start from a good Tax Attorney. He was able to direct me to one of the lawyers responsible for defending the IRS tax code in Federal court. I proceeded with the phone trail from this point and wound up with the man responsible for section 988 of the IRS tax code. At first he said that section 988 did not apply to us (article 3) because he did not realize that I had bought my Dinar as an investment with the intent to profit from an increase. At that point he said that section 988 does apply to us and we will have to pay taxes as ordinary income according to the section of the IRS code he is responsible for defending. Notice that it does not matter how long you have owned the currency according to him. He told me that he was sure of what he was telling me and would be the one to defend that position if necessary. He said he had been doing this for a while and actually wrote some of the legaleze in that code.

Now this is the interesting point. The IRS will not help you comply with them but will come down on you like a hammer if they think you have not. Their code is confusing and they know it. The problem for us is that this looks like it could be a capital gains issue and many belive it to be so. I myself would love to pay only 15% but that most likely is not what the reality it. Even if we seek professional help and do our best to comply, we will be subject to the interpretation those who enforce the tax code. You may have a great argument that seems to be in line with the tax code when you file, and if anyone can get away with 15% and keep it that way then that is great for them and I wish them the best. However, the man I spoke wqith could see that claim and with jurisdiction, go after the 15%'s and prove they are subject to section 988 and owe thw difference plus penalties.

There will be some people who will be hit hard unless we can get a special ruling or something. I tried to explain this conversation I had with IRS lawyer on another thread here at KTFM and was realy turned off by some of the responses. I don't care what you think you know about the IRS tax code and our investment. The problem is that there are people who are responsible for defending the code and their interpritation unfortunately is what you will be subject to. So, at this point, prepare to pay 35% up front or a whole lot more if you wind up filing wrong due to "Professional Advice".

People can believe what they want but I am just reporting the conversation I had with the man who actually is the IRS lawyer responsible for section 988 in Washington.

That's the first time I think anybody made sense in going the extra mile in getting info on taxes. I was hopping for just the 15% but all well!!

I love the IRS..lol. So if you buy the dinar for investment purposes any gain on exchange is taxed as ordinary income. If you buy it for personal reasons (like travel) then any gain is taxed as a capital gain. Anyone see the irony in this? Go figure.

[TR8Man]

Thanks for this update.

I contacted an "Enrolled Agent". He has done my taxes for a number of years. His belief is our appreciation will be based on Capital Gains if held longer than one (1) year or Ordinary Income if less than a year.

I AM NOT OFFERING ANY TAX INFORMATION OR ADVICE.

Seek your own Professional Opinions.

http://www.naea.org/memberportal/Resources/ForTaxpayers/whatis_EA.htm

See the above link about Enrolled Agents.

[dinarislate]

This was emailed to me from a friend who is also invested in the dinar.

Today I call the IRS to try to get answers directly from the horse's mouth concerning "How the profit derived from the appreciation of the foreign currency I have held over a year, as an individual, when exchanging into U.S. Dollars, here in the USA" should be classified on my tax return.

Should the $4,000.00 be "Simply a non-taxable event as a currency exchange, Ordinary income or a long term capital gain?"

I called the IRS number per www.IRS.gov:

Telephone Assistance for Individuals:

Toll-Free, 1-800-829-1040

Agent XXXXXXXXXX listened and sent me to:

Capital gains area questions.

Agent XXXXXXXXXX listened and sent me to:

Ordinary income area questions.

Agent XXXXXXXXXX listened and sent me to:

Complex issues area questions.

Agent XXXXXXXXXX listened and sent me to:

Advanced tax law area questions

Agent XXXXXXXXXX listened and said:

"This is an 'Out of Scope' question and I should seek competent Private Tax help." I than asked if this was the IRS and would this not be the place for the 'Most Competent' tax help? I then was told "They are not trained to answer this question and could not help me" and she was sorry but "Seek competent private ect. etc."

When I said "A private person did not make the regulations covering this question nor would they enforce the regulations ... could I please speak to someone that should or could have the correct answer?", I was told I "was at the last area for this type question" and the only answer is .(you guessed it) "Seek competent private etc. etc."

I then said " The IRS.gov 'search' doesn't have the answer and you don't have the answer, could I go to the local Phoenix IRS office with this question" and was told "They most likely would contact this area as well ... and would be told the same thing". and you would again be told to "Seek competent private ect ect".

I said ... one more question ... "What if the 'Competent private tax help' is wrong?" She then said "Well ... you sign the tax form and that makes you responsible."

I started to wonder if I just reached a lazy agent ..... so I tried the call again. The only thing different the second time was I went to the Income area before being sent to the Capital Gains area.

I think I'm going to send the same question to John McCain's office in Washing ton and hope it does not get lost. I'll see if they can get a better answer than I can from the IRS.

I know the 'Competent private tax' person that prepares the tax form and signs it with me .... but he will not pay the fines and extra tax ect.

There seems to be no easy answer .... but I'll keep you all posted.

WatchMan

Brought this over from last thread.

WatchMan,

I feel your pain. I tried the same thing but revised my search in the IRS with a start from a good Tax Attorney. He was able to direct me to one of the lawyers responsible for defending the IRS tax code in Federal court. I proceeded with the phone trail from this point and wound up with the man responsible for section 988 of the IRS tax code. At first he said that section 988 did not apply to us (article 3) because he did not realize that I had bought my Dinar as an investment with the intent to profit from an increase. At that point he said that section 988 does apply to us and we will have to pay taxes as ordinary income according to the section of the IRS code he is responsible for defending. Notice that it does not matter how long you have owned the currency according to him. He told me that he was sure of what he was telling me and would be the one to defend that position if necessary. He said he had been doing this for a while and actually wrote some of the legaleze in that code.

Now this is the interesting point. The IRS will not help you comply with them but will come down on you like a hammer if they think you have not. Their code is confusing and they know it. The problem for us is that this looks like it could be a capital gains issue and many belive it to be so. I myself would love to pay only 15% but that most likely is not what the reality it. Even if we seek professional help and do our best to comply, we will be subject to the interpretation those who enforce the tax code. You may have a great argument that seems to be in line with the tax code when you file, and if anyone can get away with 15% and keep it that way then that is great for them and I wish them the best. However, the man I spoke wqith could see that claim and with jurisdiction, go after the 15%'s and prove they are subject to section 988 and owe thw difference plus penalties.

There will be some people who will be hit hard unless we can get a special ruling or something. I tried to explain this conversation I had with IRS lawyer on another thread here at KTFM and was realy turned off by some of the responses. I don't care what you think you know about the IRS tax code and our investment. The problem is that there are people who are responsible for defending the code and their interpritation unfortunately is what you will be subject to. So, at this point, prepare to pay 35% up front or a whole lot more if you wind up filing wrong due to "Professional Advice".

People can believe what they want but I am just reporting the conversation I had with the man who actually is the IRS lawyer responsible for section 988 in Washington.

That's the first time I think anybody made sense in going the extra mile in getting info on taxes. I was hopping for just the 15% but all well!!

I love the IRS..lol. So if you buy the dinar for investment purposes any gain on exchange is taxed as ordinary income. If you buy it for personal reasons (like travel) then any gain is taxed as a capital gain. Anyone see the irony in this? Go figure.

Thanks for the information.

This is the most intelligent answer I have seen yet!

[dflake]

Try asking Charlie Rangle or Giethner, i'm sure they can help. lol

[ecosov]

This was emailed to me from a friend who is also invested in the dinar.

Today I call the IRS to try to get answers directly from the horse's mouth concerning "How the profit derived from the appreciation of the foreign currency I have held over a year, as an individual, when exchanging into U.S. Dollars, here in the USA" should be classified on my tax return.

Should the $4,000.00 be "Simply a non-taxable event as a currency exchange, Ordinary income or a long term capital gain?"

I called the IRS number per www.IRS.gov:

Telephone Assistance for Individuals:

Toll-Free, 1-800-829-1040

Agent XXXXXXXXXX listened and sent me to:

Capital gains area questions.

Agent XXXXXXXXXX listened and sent me to:

Ordinary income area questions.

Agent XXXXXXXXXX listened and sent me to:

Complex issues area questions.

Agent XXXXXXXXXX listened and sent me to:

Advanced tax law area questions

Agent XXXXXXXXXX listened and said:

"This is an 'Out of Scope' question and I should seek competent Private Tax help." I than asked if this was the IRS and would this not be the place for the 'Most Competent' tax help? I then was told "They are not trained to answer this question and could not help me" and she was sorry but "Seek competent private ect. etc."

When I said "A private person did not make the regulations covering this question nor would they enforce the regulations ... could I please speak to someone that should or could have the correct answer?", I was told I "was at the last area for this type question" and the only answer is .(you guessed it) "Seek competent private etc. etc."

I then said " The IRS.gov 'search' doesn't have the answer and you don't have the answer, could I go to the local Phoenix IRS office with this question" and was told "They most likely would contact this area as well ... and would be told the same thing". and you would again be told to "Seek competent private ect ect".

I said ... one more question ... "What if the 'Competent private tax help' is wrong?" She then said "Well ... you sign the tax form and that makes you responsible."

I started to wonder if I just reached a lazy agent ..... so I tried the call again. The only thing different the second time was I went to the Income area before being sent to the Capital Gains area.

I think I'm going to send the same question to John McCain's office in Washing ton and hope it does not get lost. I'll see if they can get a better answer than I can from the IRS.

I know the 'Competent private tax' person that prepares the tax form and signs it with me .... but he will not pay the fines and extra tax ect.

There seems to be no easy answer .... but I'll keep you all posted.

WatchMan

Brought this over from last thread.

WatchMan,

I feel your pain. I tried the same thing but revised my search in the IRS with a start from a good Tax Attorney. He was able to direct me to one of the lawyers responsible for defending the IRS tax code in Federal court. I proceeded with the phone trail from this point and wound up with the man responsible for section 988 of the IRS tax code. At first he said that section 988 did not apply to us (article 3) because he did not realize that I had bought my Dinar as an investment with the intent to profit from an increase. At that point he said that section 988 does apply to us and we will have to pay taxes as ordinary income according to the section of the IRS code he is responsible for defending. Notice that it does not matter how long you have owned the currency according to him. He told me that he was sure of what he was telling me and would be the one to defend that position if necessary. He said he had been doing this for a while and actually wrote some of the legaleze in that code.

Now this is the interesting point. The IRS will not help you comply with them but will come down on you like a hammer if they think you have not. Their code is confusing and they know it. The problem for us is that this looks like it could be a capital gains issue and many belive it to be so. I myself would love to pay only 15% but that most likely is not what the reality it. Even if we seek professional help and do our best to comply, we will be subject to the interpretation those who enforce the tax code. You may have a great argument that seems to be in line with the tax code when you file, and if anyone can get away with 15% and keep it that way then that is great for them and I wish them the best. However, the man I spoke wqith could see that claim and with jurisdiction, go after the 15%'s and prove they are subject to section 988 and owe thw difference plus penalties.

There will be some people who will be hit hard unless we can get a special ruling or something. I tried to explain this conversation I had with IRS lawyer on another thread here at KTFM and was realy turned off by some of the responses. I don't care what you think you know about the IRS tax code and our investment. The problem is that there are people who are responsible for defending the code and their interpritation unfortunately is what you will be subject to. So, at this point, prepare to pay 35% up front or a whole lot more if you wind up filing wrong due to "Professional Advice".

People can believe what they want but I am just reporting the conversation I had with the man who actually is the IRS lawyer responsible for section 988 in Washington.

That's the first time I think anybody made sense in going the extra mile in getting info on taxes. I was hopping for just the 15% but all well!!

I love the IRS..lol. So if you buy the dinar for investment purposes any gain on exchange is taxed as ordinary income. If you buy it for personal reasons (like travel) then any gain is taxed as a capital gain. Anyone see the irony in this? Go figure.

The people who work for IRS know NOTHING about tax laws. They are merely there to intimidate you and squeeze as much tax out of you "illegally" as possible!

Here is an interesting interview with a former IRS special agent . The actual interview starts about 18 minutes into the show.

http://realityreport.blip.tv/file/3261009/

[ExecConsult]

Hi,

My name is Mark. I'm an estate planning attorney, but I have done quite a bit of digging into this area. In fact a made a topic on it earlier. It was called, "Dinar Taxes - Attorney Breaks it down." You can find it here:

The original post was right on the money. However, there is one caveat. If someone has received the Dinar as a gift from you they have no expenses related to investment on the disposition of the "nonfunctional currency." Therefore, they would still fall under capital gains. If the gift is held for more than a year before cashing out, they will have long-term capital gains. (In my original post, the bit about the gifting is way down in the comments.)

I have a friend in the criminal investigation unit at the IRS who I gave the question to and she forwarded it on to an international examiner. The international examiner's opinion was that my analysis was correct. If you bought the Dinar and are holding for investment, you are under 988 and have ordinary income. If you received as a gift, you are under the "personal transaction" exception to section 988 and you have capital gains. (This is what is listed in publication 525 on page 33).

(The following is a little depressing, but as an attorney my job is to think "worst case scenario" and help people plan around it)

As an attorney who has dealt with people trying to avoid taxes (and I feel your pain), I have a word of caution. Don't try to give the Dinar to aunt Mable and have her cash it in under capital gains and then give it back.

First, there is a part of Section 988 that says they can reclassify this as a 988 transaction because you were just trying to avoid it. (It is called a step transaction.)

Second, when aunt Mable gives it back, there will be a gift tax of about 35% charged on anything over $13,000 (I'm guessing that would be most of it).

Third, if the RV happens less than a year after your gift to aunt Mable, she would have short-term capital gains which is at the ordinary income rate anyway. (Then there would still be gift tax on top of that.)

Fourth, what if aunt Mable decides not to give it back? That much money can have a powerful affect on people and Aunt Mable's kids may try to influence her to pass a little on to them. After all, you did give it to her and now it is hers under the law. (Or - they may knock her off - it has happened to other people.)

Fifth, what if aunt Mable dies before giving it back? The government takes half through estate taxes and then her kids get the rest. (Consolation prize -- they will forever teach their kids not to be suckers like you. It will be a valuable life lesson.)

Avoiding taxes is good. Trying to give the stuff to aunt Mable to "evade" higher taxes is a lousy idea.

Best of Blessings,

Mark

[buckeye88us]

Hi Mark, thanks so much for clarifying this for us.

As always, your expertise is very much appreciated!!

Have a great Thanksgiving!!

[gross0612]

I do knnow one thing that is relavent - If you use a realistic assumption - say you have $100,000 in wages etc and $2,000,000 in 15% capital gains say - your return will trigger the AMT calculation sheet which will reassess you tax liability and likely dump it into the top tax rate.anyway (AMT= alternative minimum tax)

[ORIONCDR]

Hi,

My name is Mark. I'm an estate planning attorney, but I have done quite a bit of digging into this area. In fact a made a topic on it earlier. It was called, "Dinar Taxes - Attorney Breaks it down." You can find it here:

The original post was right on the money. However, there is one caveat. If someone has received the Dinar as a gift from you they have no expenses related to investment on the disposition of the "nonfunctional currency." Therefore, they would still fall under capital gains. If the gift is held for more than a year before cashing out, they will have long-term capital gains. (In my original post, the bit about the gifting is way down in the comments.)

I have a friend in the criminal investigation unit at the IRS who I gave the question to and she forwarded it on to an international examiner. The international examiner's opinion was that my analysis was correct. If you bought the Dinar and are holding for investment, you are under 988 and have ordinary income. If you received as a gift, you are under the "personal transaction" exception to section 988 and you have capital gains. (This is what is listed in publication 525 on page 33).

(The following is a little depressing, but as an attorney my job is to think "worst case scenario" and help people plan around it)

As an attorney who has dealt with people trying to avoid taxes (and I feel your pain), I have a word of caution. Don't try to give the Dinar to aunt Mable and have her cash it in under capital gains and then give it back.

First, there is a part of Section 988 that says they can reclassify this as a 988 transaction because you were just trying to avoid it. (It is called a step transaction.)

Second, when aunt Mable gives it back, there will be a gift tax of about 35% charged on anything over $13,000 (I'm guessing that would be most of it).

Third, if the RV happens less than a year after your gift to aunt Mable, she would have short-term capital gains which is at the ordinary income rate anyway. (Then there would still be gift tax on top of that.)

Fourth, what if aunt Mable decides not to give it back? That much money can have a powerful affect on people and Aunt Mable's kids may try to influence her to pass a little on to them. After all, you did give it to her and now it is hers under the law. (Or - they may knock her off - it has happened to other people.)

Fifth, what if aunt Mable dies before giving it back? The government takes half through estate taxes and then her kids get the rest. (Consolation prize -- they will forever teach their kids not to be suckers like you. It will be a valuable life lesson.)

Avoiding taxes is good. Trying to give the stuff to aunt Mable to "evade" higher taxes is a lousy idea.

Best of Blessings,

Mark

MARK,

I REALLY APPRECIATE YOUR POST,

Would it make a difference and if so in what manner if it was gifted to an LLC, Trust or Charitable Foundation?

Cheers!!!

[tlammy]

I love this site!!!

Thank you so much for sharing your knowledge.

Happy Thanksgiving all! We have much to be thankful for.

[ExecConsult]

MARK,

I REALLY APPRECIATE YOUR POST,

Would it make a difference and if so in what manner if it was gifted to an LLC, Trust or Charitable Foundation?

Cheers!!!

Let's take those one at a time.

LLC -- If you "gift" to an LLC or other business entity, it is called a contribution. When you contribute to a Limited Liability Company, your capital account in that company adjusts accordingly. It is a tax free event because you have given it to yourself. The LLC takes the assets under the same basis and with the same nature as you held them - for investment. It will still be ordinary income when cashed out. However, your LLC may have some expenses to offset some of the income.

TRUST -- What happens when you gift to a trust depends on two things, 1) the nature of the trust and 2) who the beneficiaries of the trust are.

1) nature of the trust -- Trusts can be divided into two basic classes, revocable and irrevocable. If you place assets in a "revocable" trust, you can always change who receives those assets or take them back for yourself so there is no "completed" gift. If, on the other hand, you place those assets into an "irrevocable" trust, you can not get them back and you can not change the beneficiaries so your gift is complete. Next you have to look at who the beneficiaries are.

2) who are the beneficiaries of the trust -- If you are the beneficiary of the trust, you have given it to yourself and it will still be section 988 ordinary income. However, it will be taxed at trust rates which cap out faster so you may pay a tad bit more in income tax. The only advantage here would be if you set the trust up in Nevada, Alaska, or one of the other jurisdictions that allow for Domestic Asset Protection Trusts (DAPT) -- If properly structured, you would gain some asset protection for whatever you placed in the trust.

If the beneficiaries of the trust are other individuals, It would be like you gave the assets to those individuals and it loses its investment nature. Then it would be capital gains tax when the trust sold it. (Again, short-term or long-term depends on how long it was held).

CHARITABLE FOUNDATION - Gifting to a charitable foundation is tax free. When the foundation sells the Dinar, the income is tax free. This is true for the Cancer Foundation, it is true for a local Donor Advised Fund, and it would also be true for ORIONCDR Family Foundation where you and your children could be employed for the remainder of your natural lives. However, there are restrictions on family foundations. You would be employing non-family as well. (Organization of foundations are an area I want to learn more about. They are not my strongest area, but I know a few attorneys that do superb work in this area.)

To sum this up. If you are really giving it away then it loses the investment nature that forces into ordinary income. If you are giving it to yourself through a structure it will either be investment income or business income. Either of those are going to still be ordinary income.

My best advice to reduce taxes on it is to figure out how to get some or all of your Dinar owned in a Roth IRA. Se the following post for more detail:

Best of Blessings,

Mark

[ExecConsult]

Let's take those one at a time.

TRUST -- What happens when you gift to a trust depends on two things, 1) the nature of the trust and 2) who the beneficiaries of the trust are.

1) nature of the trust -- Trusts can be divided into two basic classes, revocable and irrevocable. If you place assets in a "revocable" trust, you can always change who receives those assets or take them back for yourself so there is no "completed" gift. If, on the other hand, you place those assets into an "irrevocable" trust, you can not get them back and you can not change the beneficiaries so your gift is complete. Next you have to look at who the beneficiaries are.

2) who are the beneficiaries of the trust -- If you are the beneficiary of the trust, you have given it to yourself and it will still be section 988 ordinary income. However, it will be taxed at trust rates which cap out faster so you may pay a tad bit more in income tax. The only advantage here would be if you set the trust up in Nevada, Alaska, or one of the other jurisdictions that allow for Domestic Asset Protection Trusts (DAPT) -- If properly structured, you would gain some asset protection for whatever you placed in the trust.

If the beneficiaries of the trust are other individuals, It would be like you gave the assets to those individuals and it loses its investment nature. Then it would be capital gains tax when the trust sold it. (Again, short-term or long-term depends on how long it was held).

Best of Blessings,

Mark

Something I should add but was too slow to think of is the following on trusts:

If the beneficiaries of the trust are charities, there will be no tax on the gift or on the gain when the assets are sold. If using a Charitable Remainder Trust you can get income off the invested assets for a many years. You may also have a deduction in the year you make the gift (depending on how much the IRS thinks will go to charity in the future). You may also change who the charitable beneficiaries will be.

If using a Charitable Lead Trust, you help your charity with income from the assets now and for a number of years. Then you can pass most or all of the corpus of the trust to loved ones in the future minimal or no transfer (gift) taxes.

Mark

[junitman]

I plan on doing a gift letter to an Investment LLC (w/corp tax treatment) I will set up in Nevada. What is the tax rate the LLC will pay once the IQD are cashed in by the LLC? For whatever reason I thought I read it is 15%- Is that right? And of course items for the operation of the LLC can be purchased, and I understand dividends we receive are taxed as personal income. Correct? More insight you might have on this situation would be much appreciated, Mark.

[ExecConsult]

I plan on doing a gift letter to an Investment LLC (w/corp tax treatment) I will set up in Nevada. What is the tax rate the LLC will pay once the IQD are cashed in by the LLC? For whatever reason I thought I read it is 15%- Is that right? And of course items for the operation of the LLC can be purchased, and I understand dividends we receive are taxed as personal income. Correct? More insight you might have on this situation would be much appreciated, Mark.

I've got to start this out by saying I am not a corporate attorney. I am also not a CPA. I am an estate planning attorney who many years ago qualified to sit for the CPA exam but never did. Therefore, If anything here is incorrect because I have missed some exception any good corporate counsel would know, please feel free to correct me and please don't crucify me. I'm doing the best I can on limited time and I am going to simplify this as much as I know how.

When you really start running numbers. There are very few times where being taxed as a C-Corp will ever be an advantage. Generally it is the other way around. If I were you, I'd make an S-Election to have the income flow through and avoid the double taxation.

Let me illustrate--

Corporate tax rates are as follows:

0-50,000 15%

50,001-75,000 25%

75,001-100,000 34%

100,001-335,000 39%

335,001-10,000,000 34%

10,000,001-15,000,000 35%

15,000,001-18,333,333 38%

Over 18,333,333 35%

You can see that you can get above 15% pretty quickly. And we are not done yet.

The LLC will need someone to run it. I'm assuming for now that is you. Therefore, you will be an employee who will be paid a "reasonable" salary for the services you provide to the corporation. (IRS is pretty vague on what a "reasonable" salary is.) For any income you receive in wages, the LLC will pay employer taxes (ie Federal unemployment taxes) and you will have the same amount withheld from your paycheck as the employees portion of the taxes. Your paycheck will be taxed as ordinary income at whatever bracket you are in. Anything above your "reasonable" salary/wages will be a dividend taxed to you at dividend rates (this year highest is 15% if Obama and current congress don't do something next year top rate will be 40%).

Lets run an example:

The LLC (taxed as a C - Corp) earns 100,000 in the RV.

pays 34% income tax = pays $34,000 and you have $66,000 left

you pay yourself a "reasonable" salary for a CEO of a small company of $50,000

If that is your ONLY income you pay 15% on it = you pay $7,500

you leave the rest in the corp to invest

So the corp earned $100,000 and you paid $41,500 (41.5% in taxes) That is the problem with "double taxation" of corporate structures. The plus of having a corporate structure is that you did not pay any taxes on what remained in the corporation. However, that is typically not reason enough to take on double taxation. Eventually the money will come out and then the it will have double taxation.

I am not going to go into employer/employee taxes in depth, but if you used your LLC taxed as an S-Corp, you would have flow through taxation (no double taxation) and after your "reasonable" salary on which you pay taxes, you could distribute the remainder of the income to yourself as a return of capital. The only reason to do this is that it avoids any employer/employee taxes. If your LLC is taxed as a sole proprietorship or a partnership, you will have "self-employment taxes" on the entire amount of LLC income. (Self-employment taxes are made to be the equivalent of the employer/employee taxes.)

Now let's run the example again. You earn $100,000 in the LLC taxed as a C - Corp.

You spend $25,000 on a used luxury car (because the CEO needs one) (or a hummer - it needs to be over 6,000 lbs for a Section 179 deduction) and you are able to expense $25,000 of it under IRC sectin 179. You also feel you need an airplane to get you to places where you will look at purchasing investment properties (this qualifies for section 179 as well). You buy interest in the plane this year (you will buy more interests next year). The interests you purchase cost $50,000. The remaining $25,000 is given to you as salary. The corporation has $0.00 income.

You now pay taxes of 35% on your $25,000 salary. However, If you have personal expenses related to the being an employee - Maybe you purchased a fancy computer setup to link with the office in Nevada (We won't mention how it will play every game ever made and allows you to monitor your home from your cell phone) -- you can claim a Section 179 deduction as a miscellaneous deduction on your 1040 (as long as it exceeds 2% of your AGI). Lets say it cost you $13,000. Now we have the income from your corporation down even further.

You could have accomplished the same result with the LLC being taxed as a flow through entity, but the company would have to purchase the computer equipment instead of you.

Being taxed as a C-Corp makes it much more difficult to avoid double taxation and may require more record keeping. These examples are over simplified and do not take into account what happens if you have to cash in all at once. The corporation will never have enough business expenses that can be taken to offset the income. You will have HUGE double taxation. I heard someone mention purchasing a house through the corp to reduce income -- you can't expense the house - you have to "amortize" it (like depreciation) over 30 or 40 years. Also, this year the amount you can expense for "qualifying" purchases only goes up to $800,000. If you make more than that, it is reduced dollar for dollar till you get to zero section 179 expenses allowed. WORSE is that next year (if Congress does nothing) that amount will drop back to only $25,000 total. (Makes me sick just thinking about it.)

My $.02 is go straight LLC taxed as a partnership/sole proprietorship Or (if you want to avoid some of the SE taxes) elect corporate tax but do it as S-Corp.

Best of Blessings,

Mark

Please some CPA out there tell me where this is wrong -- (I'm betting there will be no takers)