(Per visitor request this is an excellent article we are re-posting from TaxConnections Member John Dundon)
Recently a husband/wife owned 3 LLC’s that each successfully elected to be treated as S-corporations for federal income tax purposes by filing IRS Form 2553 – Election by a Small Business Corporation. Subsequently this great couple found themselves entertaining a rather complicated buyout offer of all 3 of their LLCs. This post addresses the tax implications of converting an LLC to a Corporation as part of a buyout strategy…
Their fundamental question:
Can the LLCs do a tax deferred corporate reorganization under IRC 351-368?
The husband/wife were concerned that their LLCs electing S corporation status might not be able to engage in a corporate reorganization because the LLC’s were comprised of ‘member interests’ and they did not have any “stock” – which is a key term in IRC 368 governing statute.
Am I Better To Put Rental Real Estate In A Sub-S Corporation, An LLC Or A Partnership?
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For most new businesses and business owners, keeping it simple is key. After all, launching a new business requires attention to detail and doing many things right. For that reason, most new businesses start out simply as a sole proprietorship or a Limited Liability Company (LLC). As a successful business matures, however, the savvy owner should call time out to consider the S Corporation form of business.
The owners of an active business operating as a S Corporation enjoy a distinct tax advantage over other types of tax entities, particularly sole proprietors, partnerships and LLCs. For the owner of a profitable sole proprietorship, partnership or LLC, the earnings are subject to both income tax and the 15.3% self-employment (SE) tax, which funds Social Security benefits and the Medicare health system. This SE tax is often unanticipated, particularly for new entrepreneurs, and can cause havoc with cash flow at tax time. Read More
Some states have created a novel and extraordinarily flexible type of entity called a “Series LLC”. Seven other states currently have this entity namely, Delaware, Illinois, Iowa, Nevada, Oklahoma, Tennessee and Utah.
Briefly, a series LLC is an LLC whose company agreement establishes one or more LLC substructures called a “Series,” each of which has a statutory “internal liability shield” that protects it from claims against other series and from claims against the LLC itself. Read More
I. Single Member LLC Asset Protection
A Debtor argued that the Bankruptcy Trustee acts merely for her creditors and is only entitled to a charging order against distributions made on account of her LLC member interest. However, the charging order exists to protect other members of an LLC from having involuntarily to share governance responsibilities with someone they did not choose, or from having to accept a creditor of another member as a co-manager. Read More
Welcome to 2018 and your new 2018 Tax Laws. If you are not aware, there is a new Tax Law that will affect all of you in our Professional care this year.
We know, understand and respect that each of your company’s DNA is unique. There are no simple answers to complex questions. Lately, the U.S. business media is abuzz with ideas and recommendations relative to the “best” corporate structure. While these are generic and generalized suggestions, some might have merit; there is little value without considering all the factors surrounding a business including, but not limited to: Read More
Every year I get this question from clients wanting to invest in real estate through their IRA or SEP IRA. While it is not as straight forward as buying stocks, mutual funds or bonds it is doable if the proper steps are followed and adhered to. First you would transfer the existing IRA to a self-directed IRA, your banks and brokerage firms will not handle these type accounts. Then form a dedicated LLC to own the properties, it will have no other business except that of the investments by the IRA.
Many US entrepreneurs set up an LLC in the beginning, because it is straightforward and not too expensive. Generally, this is a good approach for the start as LLCs offer liability protection and other advantages. However, entrepreneurs are often not aware that with increasing income, switching from LLC to S Corp makes financial sense.
Why you should consider switching from LLC to S Corp
As your income from your LLC increases, so does the self-employment tax. You earn more, you pay more tax, but your ability to contribute to retirement accounts does not change. This is where converting the LLC to S Corp has advantages. Read More
One of the most positive aspects of my job is to talk to people who come in with their start-up ideas. Whether those are tried & tested ideas or totally out of the box schemes, the excitement at starting something new is always palpable. It’s like planning a baby’s room or buying a new house.
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
A taxpayer reading one of my blog posts from Ishpeming, Michigan was compelled to call me today. She was a member in a Limited Liability Company (LLC) who had ultimately resigned herself to abandoning her interest in the LLC.
In advance of the call she faxed me a 2011 K-1 with a negative capital account as well as allocated non-recourse liabilities and a final 2012 Schedule K-1 from the partnership with $0, nada, nilch reported for both income or deductions. Evidently there was no 2013 K-1 produced.
Random calls like this routinely come in from all over the planet and every opportunity to revel in the distractions is appreciated this time of year. She began the conversation Read More
New business owners often ask, “How do I set up my business For Tax Purposes?” One of the choices you make when starting a business is the type of legal organization you select. This decision can affect how much you pay in taxes, the amount of bookkeeping and paperwork required, the personal liability you might be responsibility for, and your ability of borrow money.
For-profit businesses fall under one of four structures for tax purposes:
1. Sole Proprietor – An individual who owns an unincorporated business by themselves. Most small and home based businesses are sole proprietorships. For tax purposes, the business activity of a sole proprietor is reported on Schedule C of Form 1040. This is Read More