Although many people in the entertainment industry have formed or converted their loan-outs to S corporations, the Tax Cuts and Jobs Act of 2017 (TCJA) changed some of the tax rules that affect these corporations (and their owners!).
Let’s see how these changes affect the choice of what entity to use when forming a loan-out corporation:
● Using an S corporation (S corp) loan-out may cost you most of your deductions.
S corps are required (and have been for many years) to pass out employee business expenses to their shareholders, and not to deduct such expenses at the corporate level. That means that expenses such as the fees for agents, managers, lawyers, and business managers are not deductible by the corporation. Instead these fees are supposed to be only deductible by you, the shareholder, on your individual return, as miscellaneous itemized deductions on your Schedule A. But, under the TCJA changes, miscellaneous itemized deductions are no longer deductible (at all!). In other words, you will now be taxed on all your income and get none of your deductions.
The Tax Cuts and Jobs Act (TCJA), signed by President Trump in Dec. 2017, has significant implications for how businesses will assess the choice of entity. Prior to reform, partnerships were a very common choice of entity, but with the new provisions in TCJA, the C corporation has become an appealing option once again (but with some caveats).
The assessment by the National Law Review provides details on these significant developments in choice of entity. In general it makes a helpful point: the entity choice will continue to involve a number of considerations, such as the makeup of the investor base, capitalization structure, borrowing requirements, likelihood of distributing earnings, state tax environment, compensation and benefit considerations, participation of owners in the business, presence of foreign operations, and sale or exit strategies.
Many of you are wondering how the new tax rate changes will impact you. Obviously, we can’t answer that off the top of our heads as each person’s situation is different, and in many cases, experts are still trying to figure out how the changes will play out. One of the biggest changes is the corporate tax rate reduction to a maximum of 21% versus the maximum tax rate for individuals being around 37%.
The new tax legislation becomes effective January 1. That means many business owners are now considering whether to reorganize themselves as C corps.
Many of you are wondering how the new tax rate changes will impact you. Obviously we can’t answer that off the top of our heads as each person’s situation is different, and in many cases experts are still trying to figure out how the changes will play out. One of the biggest changes is the corporate tax rate reduction to a maximum of 21% versus the maximum tax rate for individuals being around 37%. Read More
Usually, no other factors carry the weight of the tax issue or significantly differentiate the C from the S Corporation. Limited liability is attainable in both the C and S Corporation forms. Voting rights need not differ. An S Corporation conducts business, on a day-to-day basis, exactly as a regular corporation. The only difference between the C and S Corporation is the filing of a one-page IRS form (Form 2553) electing treatment as an S Corporation.
Question most CPAs as to what business form they suggest for the business clients and they typically answer, “A C Corporation—at least in the early capital formation years of the business.” Ask any Investment Banker or other Transaction Advisor what entity they prefer and you will likely hear, “An S Corporation or LLC (Limited Liability Company), or perhaps a partnership or sole proprietorship. Anything, anything, but a C Corporation!”
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.
One day, you had an idea for a business. Acting on your dreams, you formed a corporation and opened a business. As it turned out, your business was highly successful but now you would like to step back, sell your stock, and enjoy the fruits of your labors. But you hesitate because you really don’t want to pay such a huge tax bill.
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