Free Fringe Benefits For Pass-Through Entity Owners

Pass-Through Entities which include Partnerships, limited liability companies (LLCs) treated as partnerships, and S corporations have distinct tax and non-tax advantages.

The facts are that business owners considering these forms of business ought to know that fewer tax-free and tax-favored fringe benefits are available to owners of passthroughs than to shareholder-employees of C corporations. This commentary evaluates which fringe benefits can be made available to the owners of these companies.

Working condition fringe benefits

Property or services supplied by an employer to an employee are tax-free working condition fringe benefits (WCFBs) if the employee would be entitled to a business expense deduction is he/she paid for it.

Thus, owners may receive the following WCFBs tax-free:

  • Business-related use of a company auto, if properly substantiated. The personal-use value of the auto must, however, be treated as compensation income.
  • The business-use portion of company paid country club dues, even though the dues are completely nondeductible.
  • Job-related education expenses paid by the firm.
  • The use of a cell phone provided to an employee primarily for non-compensatory business reasons.

De minimis fringe benefits

“De minimis fringe” is the value of a property or service of which is so small as to make accounting for it unreasonable or administratively impracticable. For purposes of the tax-free de minimis fringe benefit rules, “employees” include any recipient of a fringe benefit. So partners are entitled to get tax-free supper or supper money or local transportation fare if provided on an occasional basis in connection with overtime work.

Other de minimis fringes include:

  • Traditional birthday or holiday gifts of property (not cash) with a low fair market value.
  • Occasional theater or sporting event tickets, and fruit, books, or similar property provided under special circumstances (e.g., on account of illness, outstanding performance, or family crisis)
  • Traditional awards (such as a gold watch) upon retirement after lengthy service.
  • Personal use of a cell phone provided primarily for non-compensatory business reasons.

For more advice concerning the benefits Owners of Pass-Throughs can claim please contact Peter Rudolph,CPA 954 596 1120

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Filed under Benefits, Entity Choice, Tax Planning

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