Tax-free Solution for Expensive Tools of The Trade
The SoloW-2™ leaseback program is yet another way that SoloW-2™ delivers the tax advantages of self-employment within the framework of corporate employment.
Converts Capital Purchases into Tax-exempt Rental Payments
The SoloW-2™ leaseback program is a tax-free solution that converts expensive capital purchases for computer equipment, test equipment, software and other tools of the trade into tax-exempt rental payments.
The IRS restricts accountable plans for reimbursable expenses to relatively "inexpensive" items. This means that employers may not reimburse their employees with tax-free dollars for "expensive" capital items.
The IRS does not state a specific dollar amount, but rather leaves the definition of "expensive" to the discretion of the employer. Solo W-2, Inc. specifies a threshold dollar amount of $750.
Leasebacks apply to capital purchases that cost $750 or more. Leaseback payments are paid out of your division's revenues and are exempt from taxes to the extent that they are offset by the equipment's purchase price and maintenance costs.
A leaseback payment is NOT a reimbursed expense. It is a rental payment, paid by your division to an outside vendor (you) to pay for the use of expensive equipment and tools of the trade by your division's employee (again, you). At the end of the year Solo W-2, Inc. will issue IRS Form 1099 documenting the taxable rental income paid to you by your division. When you prepare your tax returns you will offset the taxable rental income with receipts showing the purchase price and maintenance costs for the leased equipment.
Leaseback payments are only payable when there are sufficient revenues in your division to support the cost of leaseback payments. In the absence of sufficient division revenues, leaseback payments are suspended. A leaseback agreement terminates on the date of the final leaseback payment or upon termination of your employment with Solo W-2, Inc.
New equipment for which Solo W-2, Inc. issues leaseback payments remains your property. Your division of Solo W-2, Inc. simply rents it from you for the duration of the leaseback agreement.
