Dental Tax Break? Renting Equipment from Wife and Kids?

What is the tax advantage of putting equipment, etc. in your children's/wife's names and then renting it back? I ran across a practice for sale where the owner does no draw to himself but rents everything from his kids/wife.

There's absolutely nothing wrong or illegal with this set-up. It's no different than owning the real estate your practice is in and renting it back, is it?

I'm guessing the seller is older and the kids are probably older as well. I say this because before the kiddie tax & then the more recent tightening of the kiddie tax rules, this was a very common strategy for businesses to shift income from the higher income tax brackets of the parents to the lower income tax brackets of their children. Why the wife's name is involved, I'm not sure, it might also be a move to NOT have assets in the name of the doctor in case of patient lawsuits...

As long as the rent being paid is fair & the income is being reported on another tax return the IRS can't say a thing about it.

What a prospective buyer needs to do is to make sure they consider these expenses when analyzing the target practice financials to narrow in on the REAL practice expenses.

This post first appeared on DentalTown.

Send your questions to Tim Lott, CPA, CVA at tlott@dentalcpas.com

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