Recently a client with a retail shop came to us for advice on how to save on his self-employment taxes, which he considered too high. We soon learned that the shop occupied a sizable ground-floor space in a building which the client owned - and which if rented out to an unrelated party would rent for $8,000 per month.
We recommended that the business be transferred to a corporation and that the client rent the property to the corporation for its market value, which in this case was $8,000 per month. "What?" the client told us, "If it has to pay rent of $8,000 per month the shop won't make any money."
That, however, was precisely the point. The shop wouldn't make any money, in which case the client's self-employment tax bill would decline from about $15,000 per year to zero. All of the shop revenues would be paid to the client as property rents, which would be subject to income but not self-employment tax.
The larger lesson from this exercise was that the shop didn't make business sense, and that the client would be better off closing it and renting the property to somebody else - it would give him more time to go fishing. Last we heard, he was headed out to the lake in his bass boat.