Tag Archive for S-Corporation

An Overview of S-Corporations

The S-corporation is the most popular tax entity in the United States and the number of S-corps is increasing faster than any other type of entity. A for-profit, state-chartered corporation may elect S Corp status. Additionally, one option available to an LLC is the ability to elect to be taxed as an S-corp. Note that an LLC that elects this status is not a corporation and will not be treated as a corporation other than for tax purposes.

The increasing number of S-corps can be attributed to at least two major factors. First, the attributes of an S-corporation are attractive to entrepreneurs. Major advantages are that losses can be passed on to the shareholders and deducted on their individual returns. The S-corp provides limited liability protection and it is easier to raise capital as a corporation. Additionally, S-corp earnings are not subject to self-employment taxes, Read More

Written by | Posted in Corporate • IRS

Special Election For U.S. Expats In Canada With S Corporations Can Avoid Double Tax

Often, U.S. citizens who move to Canada are shareholders of U.S. S Corporations. This can potentially create double tax problems.

Under Canadian tax law, the S Corporation is just like any other foreign corporation. Dividends received are generally fully taxable. In addition, if the S Corporation is a “controlled foreign affiliate”, the shareholder can be taxable on his or her share of underlying investment income and capital gains under Canada’s “foreign accrual property income” (“FAPI”) rules.

Double taxation can arise because of the fact that Canada will generally only grant limited foreign tax credit relief for the U.S. taxes paid by the shareholder on the S Corporation Read More

Written by | Posted in Corporate • Expatriate • Individual

S Corp – Charitable Donations

The most intriguing aspect of maintaining this tax blog is the pleasure of meeting and engaging a wide variety of successful people all with the courage to take the risk of venturing out on their own profession in pursuit of dreams and aspirations. Sharing with me the lessons learned through experiences chalked up to enduring hard knock after hard knock I have learned from my readers and subscribers along the way of which I am profoundly thankful.

I couldn’t help but notice that many of my friends and clients alike, particularly those of you in the business of providing services to the community, have become successful beyond anyone’s wildest expectations and are now more prepared than ever to accept the significance of gifting in the greater scheme of life’s affairs. Because people that read my Read More

Written by | Posted in Corporate • Tax Deductions

Accumulated Adjustment Accounts

TaxConnections Blogger John Dundon posts about accumulated adjustment accountsNow 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

Written by | Posted in Corporate • Federal • United States
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