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
Tag Archive for S-Corporation
In any successful family business there will likely come a time when descendants will want to take over the business from the older generation of owners. Usually, this will require that entities will need to be split into different business entities to accommodate both differences between the descendants (perhaps the descendants can’t cooperate with each other) or managing risk, so that high risk business can be separated from lower risk businesses and investments (construction business needs to be separated from investment assets such as stocks, bonds, annuity assets).
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.
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
Tables presenting statistics from the Form 1120 series are now available in 2012 Corporation Income Tax Returns Complete Report (Publication 16). Published annually, these tables present comprehensive data on corporation income tax returns.
This release includes returns with accounting periods ending July 2012 through June 2013 and includes data from Forms 1120, 1120F, 1120L, 1120PC, 1120RIC, 1120REIT, and 1120S.
Data are classified by industry, size of total assets, and size of business receipts. Separate tabulations of data reported on Form 1120S, U.S. Income Tax Return for an S Corporation, are also included. Read more
The Nuanced Relationship Between Passive Losses & Self Rental Gains – Schumann v. IRS: Reg. 1.469-2(f)(6)
Back to my friends that I previously wrote about who misunderstood passive activity and material participation. They are a married couple filing jointly and own a very successful business together structured as an S-corporation as well as a portfolio of rental real estate properties. They actually consider themselves privileged to have their their tax woes shared anonymously via this tax blog which is helpful as I appreciate any opportunity to share how real life scenarios are applied to the US internal revenue code.
One of the properties my friends own – titled in their personally names jointly – has as a tenant an S-Corporation in which they each also own 50% of the shares issued and outstanding. Basically they hold title to the rental property – a large office warehouse complex – and they own the corporation that rents the property. Unfortunately this rental 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
Part I of this blog post detailed the requirements for eligibility for electing S corporation status, maintaining it, as well as the tax benefits of being an S corporation. It also outlined how S corporation status can be lost. The possible loss of S corporation status becomes very tricky when a foreign shareholder is involved, since nonresident aliens are not permitted to be shareholders in an S corporation. If a foreign national is a shareholder and is a US “resident” for income tax purposes, then S corporation status is fine, but it must be remembered that the other shareholders do not have control over the individual’s maintenance of his US “resident” status.
How to Prevent Inadvertent Termination of S Corporation Status
Steps to prevent the inadvertent termination of S corporation status should be undertaken Read more
Often, a small business or start-up will utilize an S corporation election for their business. An S corporation is a corporation formed under a particular State’s incorporation laws (or an organization that has elected to be treated as a corporation for US income tax purposes). The corporation must be eligible to elect S corporation status and its shareholders must consent in writing on Form 2553 to have the corporation elect S corporation status. The Form 2553 must be filed with the Internal Revenue Service (IRS) on or before the 15th day of the 3rd month of the corporation’s tax year in order for the election to be effective as of the beginning of that tax year. If the corporation is on a calendar tax year, the Form 2553 must be filed on or before March 15th in order for the election to be effective for that tax year. Read more