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The stealth benefits of small business ownership

By: Jim Blasingame
Posted: 11/12/2012 11:18:00 AM
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The classic financial benefits derived from business ownership typically fall under two categories:

1.  Earned income – salary and bonuses as reported on your W2 form each year.

2.  Unearned (investment) income – distribution of profits from the operation and/or sale of the business.

But there are other ownership advantages that I call “stealth benefits,” because they’re not as evident as operating opportunities. The stealth benefit that is not only the most generally accepted, but which has the most wealth creation potential is to personally own the real estate in which you operate your business.

Here’s an invariable: Every business is a tenant of a landlord under a commercial lease. There are many financial and strategic reasons to lease property from someone else. But this arrangement offers only tax advantages – deducting expenses associated with the lease – no direct investment benefits.

Now let’s consider a lease relationship that includes stealth benefits. As long as your business is legally structured as a tax reporting entity, like an S Corp or LLC, you can accrue those stealth benefits by personally owning the real estate your business operates in, and becoming the landlord of that legal entity.  For example: Smith Enterprises, Inc., tenant of Tom Smith, property owner and sole shareholder of tenant.

The first stealth benefits are your business doesn’t have to worry about prohibitive rent increases, or getting kicked out because the landlord won’t renew the lease. Other stealth benefits are tax and investment related:

Write this on a rock…Take advantage of the business owner’s stealth benefit of owning the real estate your business operates in.

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Jim Blasingame is one of the world's leading experts on small business and entrepreneurship. He is the creator and award-winning host of the nationally syndicated radio program, The Small Business Advocate® Show.  In addition to his weekly columns, Jim is the author of two books; Small Business is like a Bunch of Bananas and Three Minutes to Success.