Alright, I kind of asked this question before last year in a thread about partnerships vs. SP, but I met a friend of mine last night that told me a little more about how his business is structured, and I just can't think it is legal. Maybe it is. This is the second time that the same tax person has been recommended to me, as I discussed this somewhat previously. But, I'd love to see what others think of this model.
Basically, the way my friend explained it, a sole proprietor pays the highest amount of tax possible. That is just the fact as he stated it.
He said that basically under his LLC/S-corp setup (which cost about $800 to set up the first time) he brings in money, pays all of his bills through the business, and then gives himself a tiny salary ($100/week for groceries, his wife has her own job). But he's paying his house payment and utilities and all life expenses through the business. For example, he said that he's got it set up so that his business owns the house and leases it back to him, thus making it all business expenses, including utilities and such.
I thought that you had to actually use the house in the business (which he doesn't) in order to take the whole mortgage payment off. Otherwise, you could deduct a small portion based on whatever the percentage of the house your office qualified as.
Yes, he's paying far less taxes than I am. But does that sound kosher to you? Also, isn't a reason for filing an LLC to keep the liability away from your personal assets like your house? By putting his house in the business name, doesn't that put his house at risk if anything ever happens?
Thanks for any feedback. Everyone keeps telling me to get an accountant, and this particular person has now been recommended to me twice, but it sounds shady to me. I'm all for taking whatever LEGAL means I can to lower what I pay in taxes, but not if it is shady or puts my personal assets at risk.