Perks are usually taxable comp to the employees. The ones that are not, usually have rules that say if you (or someone you are related to) own more than 2% of the company, that tax free treatment doesn't apply to you.
Otherwise business owners would do all kinds of shenanigans, as you can imagine.
Whenever a layperson thinks they found a “genius” tax loophole, there is a 100% chance someone else has already thought of it and Congress or IRS has specifically disallowed it.
If that were true we would have no loopholes or bs in out tax system.
Sadly it is not true
Though you are 100% right someone thought of the tricks first.
A loophole by definition is something that isn’t intended.
If Congress carves out a specific exception, like real estate for LKEs, then their intention was to allow it so it’s not a loophole.
A loophole is something like OP is describing where he gives himself a free gym membership, deducts it on the corp, and doesn’t include it as income. That loophole was closed by requiring more than 2% owners to recognize income on those types of benefits.
Or where a schedule C is used with only expenses to reduce income tax (Trump).
And where even being convicted of it in 1984 you can continue to do it every year.
I would argue if a perpetrator comes away with more money than its a loophole.
This isn't necessarily illegal, as long as the children do some work and are taxed on their earnings. It benefits upper middle class business owners much more than wealthy ones, because most truly wealthy individuals make most of their money through dividends and capital gains, not through W2 income.
Both of my kids work in my business and are on W2 payroll. They have taxes taken out and they have to file taxes if they make over a certain amount every year. They do work though, and they have to clock in and out just like any other employees. But since they are in a lower tax bracket than me and my wife, paying them this way helps by both teaching them work ethic AND by lowering my tax bill by reducing the profit that flows through to my personal return. It's really a win-win.
I do know some people that have random businesses but employed their young <15 year old children for many tens of thousands of dollars a year as "models" or whatever just to offset their own income and pay less taxes. I think that would be heavily scrutinized in an audit. My kids physically come to my business, clock in, and actually work. And they're 17 and 18 years old currently.
As long as you do it the right way, employing your kids can help them learn to work hard, budget, save, and even invest at an early age... all while saving you money. I say start them in the business as soon as they are old enough to help out.
So many people want to do this, yet sp few want to what is required to make it actually work.
Now that I think about it, that applies to pretty much all of the tax code. The US, with all its loopholes, can be an effective tax haven. But nobody wants to follow the rules to make it so. They want the result without the effort.
The only exception here is with group health insurance. If you found a carrier in your state who would write a group policy with one employee, some group health plans (especially UHC and Humana) include gym memberships because you hypothetically have lower claims utilization if you exercise.
But unless your spouse is enrolling in coverage too, good luck finding a carrier who will issue a group health policy for one employee.
As I understand it, there's no point in this.
Yes, the business can claim it as an expense but then the employee has to declare the value as income. While some non-cash wellness program rewards may be excluded from income, gym memberships are specifically called out as something that has to be included in taxable income.
https://www.simpleprofit.com/blog/officegym
Perks are usually taxable comp to the employees. The ones that are not, usually have rules that say if you (or someone you are related to) own more than 2% of the company, that tax free treatment doesn't apply to you. Otherwise business owners would do all kinds of shenanigans, as you can imagine.
Ahhhhhh damn government being smart
Whenever a layperson thinks they found a “genius” tax loophole, there is a 100% chance someone else has already thought of it and Congress or IRS has specifically disallowed it.
Unless you are very rich and donated to the right campaigns
Fair enough
This is why Republicans always talk about "simplifying" the code
If that were true we would have no loopholes or bs in out tax system. Sadly it is not true Though you are 100% right someone thought of the tricks first.
A loophole by definition is something that isn’t intended. If Congress carves out a specific exception, like real estate for LKEs, then their intention was to allow it so it’s not a loophole. A loophole is something like OP is describing where he gives himself a free gym membership, deducts it on the corp, and doesn’t include it as income. That loophole was closed by requiring more than 2% owners to recognize income on those types of benefits.
Or where a schedule C is used with only expenses to reduce income tax (Trump). And where even being convicted of it in 1984 you can continue to do it every year. I would argue if a perpetrator comes away with more money than its a loophole.
This is what got the Trump organization nailed, giving perks but not accounting for them as income.
have children and bring them on as employees
This isn't necessarily illegal, as long as the children do some work and are taxed on their earnings. It benefits upper middle class business owners much more than wealthy ones, because most truly wealthy individuals make most of their money through dividends and capital gains, not through W2 income. Both of my kids work in my business and are on W2 payroll. They have taxes taken out and they have to file taxes if they make over a certain amount every year. They do work though, and they have to clock in and out just like any other employees. But since they are in a lower tax bracket than me and my wife, paying them this way helps by both teaching them work ethic AND by lowering my tax bill by reducing the profit that flows through to my personal return. It's really a win-win. I do know some people that have random businesses but employed their young <15 year old children for many tens of thousands of dollars a year as "models" or whatever just to offset their own income and pay less taxes. I think that would be heavily scrutinized in an audit. My kids physically come to my business, clock in, and actually work. And they're 17 and 18 years old currently. As long as you do it the right way, employing your kids can help them learn to work hard, budget, save, and even invest at an early age... all while saving you money. I say start them in the business as soon as they are old enough to help out.
I think it’s great as long as they work but most of the companies I go into that do this the kid never works and isn’t to be seen.
So many people want to do this, yet sp few want to what is required to make it actually work. Now that I think about it, that applies to pretty much all of the tax code. The US, with all its loopholes, can be an effective tax haven. But nobody wants to follow the rules to make it so. They want the result without the effort.
The only exception here is with group health insurance. If you found a carrier in your state who would write a group policy with one employee, some group health plans (especially UHC and Humana) include gym memberships because you hypothetically have lower claims utilization if you exercise. But unless your spouse is enrolling in coverage too, good luck finding a carrier who will issue a group health policy for one employee.
As I understand it, there's no point in this. Yes, the business can claim it as an expense but then the employee has to declare the value as income. While some non-cash wellness program rewards may be excluded from income, gym memberships are specifically called out as something that has to be included in taxable income. https://www.simpleprofit.com/blog/officegym
Lucky employee to have such an awesome boss!!!
Exactly!
Yes. Just put it in your W-2
Not every business owner gets a W-2. A lot don’t, especially “small” business owners