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What law excludes President Obama and his family from including taxable fringe benefits in his W-2 income?
So, since no else was willing to give a serious answer, I thought I’d give it a shot since I like a challenge.  It’s been a while since I wrote a tax research memo, so think of this as a rough answer since I only took a few minutes to research… This might only answer part of the question (specifically related to transportation), but if you start with Treasury Regulation 1.132-5 as you mentioned, you find the rules regarding fringe benefits.  President Obama would be defined as a government employee according to (m)(7)(i).  As a government employee, he is provided transportation for security concerns (m)(i) as part of an overall security program (m)(2)(iii) where a bona fide security concern exists (m)(2)(i) in accordance to an independent security study with respect to government employees (m)(2)(v).  If provided under these rules, this transportation is excluded from Obama’s gross income.  The study determines the extent of personal use that may be allowed (m)(2)(v)(C).  Spouses and dependents of government employees are extended this service as it is deemed a security concern exists for them, too—all of which is excluded from Obama’s gross income, as well (m)(2)(iv).  In the same vein, trained bodyguards and chauffeurs are excluded from his gross income (m)(5)(i).  While it’s not explicitly stated, I would assume you could apply the same logic to the personal chefs, trainers, maids, etc. in the White House as being specially trained due to safety concerns—or more generally as part of the overall safety program (and hence also excluded from the President’s gross income). Just as a note to some of the items you listed, based on what I’ve read, the President of the United States and his family pay for clothing and food out of their own personal accounts (publicity needs for a suit and food preparation are a different story). Not bad for a former tax junkie—I know I’m on the right track, but care to share the complete, correct answer, Tom?
What is the best way to determine what salary to pay me working at an S corporation?
Dear Entrepreneur, First off I want to congratulate you on your first step as an entrepreneur. As you take on this journey of entrepreneurship you must make sure that you assemble the right team of advisors. I mention advisors because no one truly knows everything and if they say that they do then they are probably not the ones you want on your team. As an entrepreneur you have to know how to be humble enough to accept criticism and instruction but wise enough to know which information to follow. You are the business owner an ultimately it is your decision what you do but just make sure that it is legal and documented.  Never take an advisors guidance blindly because we all are works in progress. With that being said here are some suggestions: 1. Don't file the Subchapter S election: When you file as a corporation you are automatically a Class C corporation and you must file additional documentation to become a S corporation. Most accountants advise business owners to become a class S corporation for two main reasons: 1. To claim business losses against any personal income: In the beginning of every business their tends to be losses that are incurred. The S corporation is a flow through entity and as such income and losses are passed through to you on a personal level. There is a lot of inaccurate information on the internet about the differences between entities. "If you see it on the internet it must be true." More than likely not. Here is the info directly from the IRS website: S corporations are corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. Internal Revenue Service The next answer is two fold and will be answered as such:2.1 To prevent the business owner from being double taxed: This is in relation to the business owner filing as a Class C corporation which files a separate business return. (Form 1120) The Corporation then pays a wage or salary to the officer/owner that pays taxes on that income personally. In a class S corporation the business filing is no longer required because the income is distributed to the owner on a personal level. 2.2 To prevent the business owner from paying self-employment taxes as a sole proprietorship or an LLC. LLC's and sole proprietorships are both flow through entities but have to pay a self-employment tax on their income. When filing a Class S corporation the self-employment tax is eliminated.  Why I suggest you to exist as a Class C corporation?Class C corporations give the business owner greater flexibility in terms of tax planning, fringe benefits, fund raising, etc. Year EndA Class S corporation has to file on a calendar year end of December 31. (Their are very rare exceptions and it is not recommended by the IRS but must be approved by filing Form 1128 Application To Adopt,  Change, or Retain a Tax Year. This permission is sometimes granted for businesses that are seasonal in nature.) Class C corporations on the other hand at their initial EIN filing can choose what time of the year they would like to file their corporate taxes. (Personal taxes must still be paid regularly.) There are many benefits to having a fiscal year but one of the main benefits is that you can handle business and personal filings at different times which allows you greater tax planning flexibility. (For greater insight into year ends please contact an experienced local tax accountant or consultant in your area.) Fringe BenefitsAs an employee of your corporation you can set up certain fringe benefits that are tax free and do not have to be filed under your income personally. *Special note: not all fringe benefits are tax free and will be seen as taxable income unless the tax law specifically excludes it from taxation. The taxable fringe benefits should be included on the W2 of the employee and are subject to withholding.* Here are a list of the tax free fringe benefits: Health Saving Accounts, Accident insurance, Health insurance( up to a certain amount), achievement awards, commuting benefits, educational assistance, dependent care assistance, moving expense reimbursements, group term life insurance coverage (based on policy value),working condition fringe benefits such as services and property that may be provided so that the employee can do his or her job, business premise lodging, cafeteria plans that will allow the employees to choose from two or more benefits consisting of cash and qualified benefits, employee discounts on the goods or services that the business/employer sells, employee stock options, supplemental unemployment benefits, qualified employee benefit plans which include stock bonus plans, money purchase plans as well as profit-sharing plans. There are also some other cool fringe benefits:De minims fringe benefits: (low cost) Such as coffee, soft drinks, event tickets, low cost holiday or birthday gifts, traditional awards, and other special occasion gifts. For more information on fringe benefits please visit the IRS website and find IRS Publication 15-B, Employer’s Tax Guide to Fringe  Benefits. (Make sure your accountant has knowledge of fringe benefits and the difference between taxable and non-taxable benefits.)  2. Contact a Local Employment Agency: This section returns me back to the focus of proper documentation as a business owner. I will suggest that you contact a local employment agency in your area and supply them with a total amount of hours worked as well as your management responsibilities. Have the employment agency put into writing for you the cost that it would take to hire a person to fill your role in case of you could no longer fill the role. Take the document that they prepare and file it in the same place that you keep a copy of your tax returns in case you are ever audited. Other things to consider: Please make sure that you understand the differences between distributions and wages as a Class S Corporation. This is very important because if you do not fully understand these concepts you can be at a higher risk of having your distributions reclassified as wages which could in turn cause you to pay more in taxes and penalty. (Make sure that you and your accountant speak annually about the balance between your wages/distributions.) Although the subject can be more complex than what I am sharing here are some tips: 1.Make sure that you do not make more than one monthly distribution.2. Make sure that when the distribution is made it is documented in your corporate minutes each time a payment is made.3.Make sure that you state the distribution payment in terms of dollars per share. (Round to the nearest whole number) x Total shares.There are many other suggestions but those suggestions should be discussed between you and your account. After all, that is why they are accountants. The issue of reasonable compensation can be a tricky one and should be something that takes into account many different factors such as the size of the business, state of the business, volume of business handled by the employee, complexities of the business, similar company employee comparisons(companies in your area that prsimilar services), salary policy, employee salary history, local living conditions, employee performance, and the employees overall contribution to the company. In most cases you just need to use common sense, be reasonable, and document everything. *Keep a record in your corporate minutes that goes over your logic when determining your salary which should include the facts and circumstances that brought you to your ultimate decision.* Last Thoughts: There is so much surrounding this subject that one can write on it for hours but this is a good start. In most cases use your better judgment and act as a reasonable agent of your corporation. If you feel as though you are out of line with your actions then you probably are so correct it. Don't let this or any other issue keep you from flourishing as a business owner. These guidelines are only given to help prevent abuse. I believe the government has a true desire for businesses to succeed and as such wish to help more than control. In conclusion, Trust your gut, seek advice from your tax team, and learn continuously. Good luck and make it happen. Warmest Regards, J.R. McNairMeticulous Entrepreneur   ps: If you have any other questions please feel free to reach out to me at info@jrmcnair.com or visit me online at http://www.JRMcNair.com
How are taxable benefits used?
.How are taxable benefits used?I am not sure I understand your question. Certain employee benefits are considered income and thus taxable. They go into the general revenue funds of the federal and state government. They are not specific-use tax such as a transportation, hospitality, or property tax.Publication 15-B (2022), Employer's Tax Guide to Fringe BenefitsImageSource: irs
How does fringe benefits affect tax?
In Canada, some fringe benefits are not taxable:Group medical, vision and dental premiumsEmployee discounts, provided they are open to all employees and are not below the employer's costLife Insurance premiums to a maximum death benefit of $10,000That is pretty much it, other benefits are taxable for income tax.
How do taxable life insurance benefits work?
Death benefits are not income taxable unless you run a small corp and try to beat the feds by expensing your premiums or something.When you surrender the policy, you pay taxes on the amount you receive in excess of total premiums. If you take it out in various amounts, you pay no taxes until you’ve taken out as much as the premiums you paid.You can get various payment plans from the company which vary in structure and which have differing tax treatments.Some companies will pay a bit of interest on the death benefit after a claim. That’s taxable.Many companies offer an option for death benefits, you get a checkbook instead of a check and give you an interest-bearing account. The interest would be taxable.Some people will have a cash value plan and let it pay for itself by using automatic premium loan. So the company, in effect, takes the money out of one end of the contract and puts it in another end. Meantime the coverage remains in effect net of the loan amount. This is tricky, from a tax aspect.When the company pays the premium this way, the gross cash value goes up as if you paid it. If you let the policy eat itself up as the loan exceeds the cash value, it may resemble a surrender. Policy loans are not supposed to be taxable. But if you do this and the policy generated more money than you put in by premium loaning, it might be treated as a surrender and with taxable considerations.
How do fringe benefits count as income?
Please define fringe benefits.If what you mean is "free use of the office photocopier" then, no, that does not count as income.Please define the context in which you are asking.If you are asking from a "comparing compensation" perspective, that is quite different than if you are asking from a "tax implications" perspective.Please tell us what country you work in.Laws and practices vary by country.
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