The Protecting Americans from Tax Hikes Act (PATH) contains a number of tax provisions that are designed to reduce the amount of taxes paid by United States taxpayers. This act was signed by the President in December 2015. The provisions in the act are not new incentives, but made existing incentives permanent. This can be seen as somewhat significant as there is sentiment in Congress and elsewhere to reduce the tax benefit from charitable contributions. I would add that “permanent” in tax lingo means the provisions do not expire, but may be changed at any time by Congress.
Tag Archive for C Corporation
The T1134 and T1135 are a sample of Canadian foreign information returns such as the U.S. 8938, 5471, or 8865.
A number of Canadians are investing in the U.S. real estate market with a U.S. limited partnership, whose limited partners are solely Canadian residents and the general partner is a U.S. C corporation, whose shareholders are also Canadian residents.
The short-term highway funding extension was passed by the Senate and the House of Representatives and was signed into law by President Obama on July 31, 2015. It contains several important tax provisions (H.R. 3236 (https://www.congress.gov/114/bills/hr3236/BILLS-114hr3236ih.pdf)). The bill changes the due dates for several common tax returns, overrules the Supreme Court’s Home Concrete decision, mandates the reporting of additional information on mortgage information statements, and requires consistent basis reporting between estates and beneficiaries.
Broadly speaking, the act establishes new due dates for partnership and C corporation returns, as well as FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR), and several other IRS information returns: Read more
Congress recently passed some legislation that changes the due dates of certain returns. Partnership and S Corporation returns using a calendar year will be due on March 15 (two and one-half months after the end of the fiscal year). This is effective for tax years beginning after December 15, 2015.
C Corporation returns using a calendar year will be due will be due April 15 (three and one-half months after the end of the fiscal year). This is effective for tax years beginning after December 15, 2015 unless the fiscal year ends June 30, in which case it is effective for tax years beginning after December 31, 2025. Go figure.
The new law also changes the due date for the FinCEN Report 114 to April 15. Remember Read more
Tax Code Changes Create Challenges
What should small business owners focus on for 2015 tax planning?
An important, yet often overlooked, issue for small business owners is the choice of the form of entity under which they operate. For 2015, this will become critical as Congress contemplates major changes to the tax code. Currently, the maximum corporate federal tax rate is generally less than the maximum individual tax rate. This has led many business owners to consider converting their sole proprietorships and pass through entities (such as S corporations and LLCs) into C corporations, which are taxed at the lower corporate rate. Caution must be exercised before making this change, Read more
As a general rule, U.S. residents are only subject to Canadian tax on business income to the extent that such income is earned via a permanent establishment (“PE”) in Canada(1).
If a U.S. C corporation earns profits that are taxable in Canada, such profits will be subject to federal corporate taxation under Part I of the Income Tax Act (“the Act”) at a rate of 15%, plus, assuming there is a PE in a province, provincial corporate taxation at varying rates. For example, in Ontario the rate is 11.5% and in Alberta the rate is 10%, thereby resulting in combined corporate tax rates of 26.5% and 25%, respectively(2).
In addition, a U.S. corporation earning income from carrying on business in Canada may also be subject to the “branch tax” that is levied under Part XIV of the Act. This tax is quite Read more
Now that the corporate tax extension deadline is past and we all prepared, signed and filed our 2012 1120-S IRS forms (yeah right!), I write to report some of my codified thoughts on Analysis of Accumulated Adjustments Account, Schedule M-3, Other Adjustments Account, and Shareholders’ Undistributed Taxable Income Previously Taxed. Or in tax speak the “AAA”.
Generally your corporation’s Accumulated Adjustments Account (AAA) is an account of the corporation. It belongs to the corporation, not to you the shareholder. If you have elected S-Corporation Status the AAA tracks the amount of undistributed income that has been subject to income tax at each respective shareholder’s marginal tax rate. Its treatment is similar in nature to the manner in which earnings and profits generally track a C corporation’s undistributed income.
The AAA became relevant in 1983, so if you formed your S-Corp any time then or later the first day of the first year your corporation is an S corporation the balance of the AAA is zero. Each year after that the AAA is adjusted under mandate. I’ll address how to adjust the AAA a bit later in the post.
The significance of the AAA is that it allows previously taxed but undistributed income to be distributed income tax-free to shareholders up to the value of the shareholder’s investment in the corporation. This can be a difficult concept to grasp and without adequate bookkeeping even more difficult to track.
Here’s why… Read more
We meet again, you tax-paying rascals! Penny here, and I’m back atcha with another installment of Penny Taxwise. As you loyal readers out there know, your ol’ pal Penny is rocking the whole work-at-home mom gig like crazy this year. At the end of 2012, my little freelance writing biz exploded and I’ve been struggling to catch up with the success.
To compound things further, I’ve branched out from the freelance writing to a variety of other endeavors – a blog, websites, and an upcoming info product line to be exact. I expect to earn a significant amount of income from these things over the next couple of years, and it dawned on me that I should think about taking the plunge and becoming an actual business.
Naturally, I’ve been researching the heck out of the idea this week. I was spurred by a question that was posted recently right here on TaxConnections:
Oh man. That’s my biggest fear realized. I try to do everything by the book, but I fear the wrath of Uncle Sam when it comes to incorrect self-employment tax records – I think all freelancers feel the same way. Patrick O’Hara, Tax Pro and Owner/Enrolled Agent of CHR Associates in New York, jumped at the chance to respond:
Well, wow. His reply was the final push over the edge I needed to finally make a real effort with my business structure search. Off I went to learn about business entities, and boy… did I learn a lot!
Why I’m Thinking LLC
Since Mr. Taxwise and I have our own property to protect, I want to form a legal structure for my business that will shelter us from any potential lawsuits against our personal assets down the road. If you’re wondering why I’m so worried about that with nothing but a teensy Internet biz to show for myself, allow me to enlighten you.
My ultimate goal is to eventually purchase rental properties. It’s something I’ve wanted to do for the better part of ten years, and my online adventures may just allow me to build up enough savings to break into the game. However, if I choose to file as a sole proprietor, my personal assets won’t be protected.
That’s why I decided to go for incorporation. I learned that there are three basic types of legal entities freelancers could form if they choose to incorporate: an S Corporation, a C Corporation, or an LLC (Limited Liability Company). Each comes with its own benefits and drawbacks for freelancers, so picking the right one is vital for protecting your bottom line.
According to an awesome SBA writeup I found, S Corporations, if owned by one single shareholder (the freelancer), allow only the earnings to be subject to employment tax. If the S Corp freelancer makes quite a bit one year, he or she can take a fraction of that year’s earnings as a paycheck and the rest as “profit through distribution to shareholders.”
The S Corp does have a major downside, of course. It demands yearly legal hoop-jumping, including accomplishing compelling tasks throughout the year – requirements such as holding regular shareholder meetings, filing minutes from them, extensive record-keeping, and reporting bylaw updates. Sounds like a blast, right?
On the other hand, a C Corporation is great for people who have small startups that may seek future venture capital to finance expansion. Although there’s flexibility to spread profits around to plan for taxes. However, at the end of the day, a freelancer who chooses this corporate structure will almost always end up with a hefty tax bill due to the whole double taxation thing. Not very fun, either.
That brings us to the newest corporation type around – the Limited Liability Company (LLC). Owners of LLC companies deal with taxes like sole proprietors. They’re taxed on the LLC’s net income, and those taxes are reported on the owner’s personal tax return. The LLC simply acts as a “pass-though entity.”
That was all fine with me since the biggest selling point was the part about an LLC protecting me from legal attacks once I begin dealing with real estate. Plus, if my company doesn’t make much or operates on a loss at first, I can report that on my income taxes. Bonus!
Yup, I’ve definitely made my choice.
Evaluating Your Own Biz
Enough about me… let’s talk about you! If you’re the proud owner of a small biz or a freelancer yourself, it’s important to evaluate your own business needs before choosing a structure. Moreover, you should talk to a tax professional before making any big decisions.
In addition, don’t forget to check with your state for laws concerning your new filing status. Many require different kinds of things from you depending upon the entity you choose.
That’s it for me this week, my taxalicious buddies!
Until next time.
Making Cents Count,