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Subject:  Re: Avoiding gift tax via a Corporation Date:  6/28/2006  3:21 PM
Author:  wrjohnston91283 Number:  87590 of 120797

First, as long as the corporation has a legitimate business purpose (in this case you want to start real estate), there shouldn't be too much of a problem. The IRS looks at the substance of a transaction rather than the form (that's to say, a transaction could be structured perfectly legal but if the ONLY reason for the transaction is tax avoidance, the IRS has issues.)

Second, why would you do it that way? They are still limited to the $12,000 a year amount they can gift you, regardless of stock or cash.

The only benefit in my mind is that rather than them having $50,000 sit in a bank account for five years as they draw it down, you would be able to invest it in your company, and possibly make their share of the company grow (which means it would take them longer to gift it to you). You would also need to borrow less, reducing you financing costs.

Keep in mind that the IRS does have rules regarding the deductability of losses between related parties (you still HAVE to report any income). Just something to think about when starting a corporation with your family.
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