...1120S U.S. Income Tax Return for an S Corporation S Corporations or nominated S Corporations by filing or enclosing form 2553 are authorized to file their income tax returns with 1120S U.S. Income Tax Return for an S Corporation. This five-page form requires various financial particulars in Schedule B, K, L, M1, and M2. You may choose to terminate the nomination for being an S corporation using the provision in this form. Please provide accurate and truthful particulars of income, deductions, and tax as and when requested by the form. Steps to Prepare 1120S U.S. Income Tax Return for an S Corporation Form 1120S Enter the tax year, effective date of S selection, business activity code, mark box if Schedule M3 is enclosed, enter the employer identification number, and date incorporated and total assets. Continue by typing or printing the name and address....
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...must be met in regard to the stock in an S corporation? What differences are allowed? Each S Corp shareholder must be a U.S. citizen or resident. C Corp can have multiple classes of stock while S Corp are limited to one class of stock. 21-13. What limits are placed on the selection of a tax year of an S corporation? How do these limits differ from those applicable to C corporations and partnerships? Generally, an S corporation or partnership must use a required tax year under the Internal Revenue Code. An S corporation must use a calendar year unless it obtains approval from the IRS. Other permitted tax years are one elected under section 444, a 52 -53 tax year ending with reference to a calendar year or section 444 tax year, or other tax year for which the company established business purpose. A partnership's required tax year is one which generally conforms to the partners' tax years unless it makes a section 444 election, can establish a different tax year for a business purpose, or elects a 52 -53 tax year ending with reference to a calendar or section 444 tax year. A C corporation may use either a calendar year or a fiscal year. A fiscal year is 12 consecutive months ending on the last day of any month except December. A 52 - 53 week fiscal tax year is one that varies from 52 to 53 weeks but may not end on the last day of the month. http://www.justanswer.com/tax/0zdnh-limits-placed-selection-tax-year.html#ixzz1aKuQWerx 21-26...
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...requirements that a corporation must meet in order to qualify under Subchapter S? 1. Must be a domestic corporation 2. Must have no more than 100 shareholders 3. Must include only eligible shareholders 4. Must have only one class of stock 5. Must not be an ineligible corporation (pg 21-4 of text) 21-13 What limits are placed on the selection of a tax year of an S corporation? S corporations are required to have their end of year on December 31 or any other tax year for which it establishes a business purpose which meets the Internal Revenue Service cod 1378 (b). How do these limits differ from those applicable to C corporations and partnerships? C corporations can set any date for their end of year without establishing a business purpose. A partnerships end of year is based upon the end of year of the majority partner. 21-26 Durrabusiness is organized as a regular C corporation in 1986. At the beginning of the present year, Durrabusiness elects to be an S corporation. Will the election cause a recapture of the general business investment credit taken on any property purchased while a C corporation? No credit except for the general business credit carryforwards and the minimum tax credit from years in which the corporation was a C corporation is allowable in the computation of the tax. This means that Durrabusiness will be able to recapture the general business investment credit. 21-53 Several individuals form Lang Corporation on May 1, 2011. The corporation begins acquiring...
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...21-2 What are the eligibility requirements that a corporation must meet in order to qualify under Subchapter S? -Be a domestic corporation; - Have no more than 100 shareholders; - The S Corporation must include only eligible shareholders in the election; - The entity must have only one class of stock; - The business must not be an ineligible corporation. 21-13 What limits are placed on the selection of a tax year of an S corporation? How do these limits differ from those applicable to C corporations and partnerships? An S Corp. must use a calendar year as their taxable year, unless certain circumstances are approved for the S Corp. by the IRS, which may allow the S Corp. to use a tax year other than the calendar year. Using a calendar year can be a challenge for businesses that changed entity type to an S Corp, and are used to using a fiscal year. This is also contrasted from a C Corp., which can use a calendar year or a taxable year, and a partnership, which normally uses whatever the taxable year is currently used for the individual partners in the partnership. 21-26 Durrabusiness is organized as a regular C corporation in 1986. At the beginning of the present year, Durrabusiness elects to be an S corporation. Will the election cause a recapture of the general business investment credit taken on any property purchased while a C corporation? The election as an S Corporation will not cause a recapture of the general business investment credit taken on property...
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...MGT.400.3 Mar. 11, 2013 Chapter 5 Homework You Be the Consultant 1. Which form(s) of ownership would you recommend to the Kinseys? Explain. Due to the Kinsey's desire to minimize their exposure to potential legal and financial problems, their choice of ownership should be a corporation. 3. What factors should the Kinseys consider as they try to choose the form of ownership that is best for them? Students should list and briefly discuss the factors that every entrepreneur should consider prior to making a final decision on the form of ownership like: taxes, liability, capital, business goals, management succession and so on. Discussion Questions 1. What factors should an entrepreneur consider before choosing a form of ownership? Factors to be considered before choosing a form of ownership include: * Tax considerations – calculate the firm's tax bill under each form of ownership. * Liability exposure - how much personal liability is involved in the ownership form? * Start-up capital required - how much capital does the entrepreneur have and how much will he need? * Control - how much control is involved for each type of business organization? How much is the entrepreneur willing to give up? * Business goals - how large and profitable does the entrepreneur expect the business to be? * Management succession plans - consider smooth transition when passing company to the next generation of buyers. * Cost of...
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...C corporations 1. Outright purchase of Smithon stock a) Should Mr. Jones purchase the stock of Smithon outright leaving Smithon intact? No, Mr. Jones should not buy the stock. A stock purchase would result in Mr. Jones acquiring the assets, liabilities and also would inherit the contractual obligations of the selling corporation. In other words, Mr. Jones has bought the existing Smithon Corporation and he is responsible of ensuring daily operations run efficiently but the tax aspect of acquisition he is responsible for existing and any future tax liabilities that the selling corporation had. I would not advise Mr. Jones to buy the stock because he will be liable for any current and future tax obligations that the selling organization had before sale. Also purchase of stock is not favorable to Mr. Jones since the tax identity of Smithon corporation does not cease not exist. The tax schedule or basis of the selling organization will not change and the tax aspects will also remain the same. The methodology and tax year will not change meaning that Mr. Jones cannot change the financial period to end in December 31. Failure to change legal entity is not advantageous to the buyer because he is limited to adhering to the current tax basis on Smithon's assets even if he had paid more for the assets. Issuing debt in Johnson Services Company to pay for the Smithon Company would raise debt equity ratio issues. Issuing debt would increase the amount of liabilities owed by...
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...1-1. What is the most important difference between a corporation and all other organizational forms? A corporation is a legal entity separate from its owners. 1-2. What does the phrase limited liability mean in a corporate context? Owners’ liability is limited to the amount they invested in the firm. Stockholders are not responsible for any encumbrances of the firm; in particular, they cannot be required to pay back any debts incurred by the firm. 1-3. Which organizational forms give their owners limited liability? Corporations and limited liability companies give owners limited liability. Limited partnerships provide limited liability for the limited partners, but not for the general partners. 1-4. What are the main advantages and disadvantages of organizing a firm as a corporation? Advantages: Limited liability, liquidity, infinite life Disadvantages: Double taxation, separation of ownership and control 1-5. Explain the difference between an S corporation and a C corporation. C corporations must pay corporate income taxes; S corporations do not pay corporate taxes, but must pass through the income to shareholders to whom it is taxable. S corporations are also limited to 75 shareholders and cannot have corporate or foreign stockholders. 1-6. You are a shareholder in a C corporation. The corporation earns $2 per share before taxes. Once it has paid taxes it will distribute the rest of its earnings to you as a dividend. The corporate tax rate is 40% and the personal...
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...countries that have leagues. 3. Do you have all the skills and resources to start the business, or will you need to find one or more partners? If so, what skills would your partners need to have? I would have to find more than one partner. With the rapid communication of the internet I think it would be possible to run the operation from a single country but to help with the streaming we would have to have server sites around the globe to help with the data flow as well as have a human representative familiar with the countries business practices be able to answer and respond to questions or problems quickly. 4. What form of business ownership would you choose-sole proprietorship, partnership, C corporation, S corporation, or LLC? Why? I think I would choose a C corporation to help the company grow and expand. This would also allow for new shareholders and stockholders to come into the company and raise more capital. This would also allow for future...
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...Directors; When contemplating whether to elect to become a “Subchapter S” or not, you must consider the benefits as well as the potential problems that might arise according to the Internal Revenue Code. The Code allows certain corporations to elect not to be taxed. This is an important exception to the fundamental rule that income of a C corporation is taxed twice, first the income is taxed to the corporation when earned and then to the stockholders when paid out to them as dividends. Subchapter S, S corporation, or limited liability in corporations (among other terms), are treated as conduits for tax purposes. The tax liability is passed through to their shareholders. Although S corporations are not subject to income taxes § 6037 requires the electing corporation to file an annual information return because the corporation is still a “taxpayer” by virtue of §7701(a)(14). Where the magnitude of the...
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...in 1989. The Martins began the business because they were retired and looking for extra income. Once they were well off and their daughters lives were becoming separate, they sold their business. Question 1: Do you think the Martins did the right thing in selling out? Why or why not? Answer 1: The Martins made the correct choice by selling Bloomin’ Lollipops, Inc. based on their circumstances. As Dot and Jiggs Martin became older, it was more beneficial for the two to sell the business and retire. Question 2: Do you think the decision to incorporate as a C corporation rather than an S corporation was correct? Explain. Answer 2: The Martins decision to incorporate a C corporation rather than an S corporation was a very smart decision. As an S corporation one of the disadvantages would be “that all shareholders must be individuals, estates, or some type of personal trust.” (Byrd & Megginson 66). The C corporation gave them the ability to run Bloomin’ Lollipop, Inc. on their own. It also protected their separate lives in case of a lawsuit. Question 3: What—if anything—would you have done differently from the Martins? Answer 3: The Martins should have sold their business to a close relative or friend. That way they could keep a percentage of the share and continue to be a part of the company they started. Conclusion: The Martins had the right idea when selling their business because of family and business expansion. However, if they had decided to share the business...
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...Small Business Idea Paper The government recently released funds to individuals who want to create a small business. This concept of releasing funds to individuals will create more jobs and stimulate the economy. The first step for a small business owner is to determine which of the four forms of business the organization will best fit with the new owner’s ideas. In addition, the business owner will need to review all tax legalities and implications associated with the different forms of business for her organization. This paper will discuss the four forms of business and the different types of financial statements associated with the forms of business in relation to consequences of taxes, liabilities, and accounting implications. Sole Proprietorship Sole proprietorship is the most common and easiest form of business to create. Some of the benefits of a sole proprietorship are that the owner can make decisions of hiring and firing employees, decisions of which vendors to use, what materials and equipment to purchase and what direction they want the business to take. A disadvantage is that the owner is limited to funds as a sole proprietor can only access the funds that are available. In addition, the sole proprietor is responsible for all liabilities associated with the business. The financial statement associated with at sole proprietorship is the statement of cash flow. The statements of cash flows provide financial information regarding cash receipts and payments...
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...Tracy and Mark both have jobs that take them away from home for long hours. They are not spending the night away but they still require sleep in the middle of their shift in order to remain safe. Facts: Tracy and Mark both work in positions that take them away from home for extended periods of time thus requiring them to sleep in the middle of their shifts. Conclusion: If the nature of the taxpayer's employment is such that when away from home, during released time, it is reasonable for him to need and to obtain sleep or rest in order to meet the exigencies of his employment or the business demands of his employment, his expenditures (including incidental expenses, such as tips) for the purpose of obtaining sleep or rest are deductible traveling expenses under Section 162(a)(2). Analysis: The “Sleep or rest rule” clearly states that even if there is no provision for sleep or rest the time the individual uses to rest is considered necessary to perform their job. As per Williams V. Commissioner the time used by both individuals for sleep, rest, meals, etc. is deductable. The following is an excerpt from our book which references the tax law and clearly shows that both individuals have the right to claim there meals, lodging, and incidentals. Shortly after Williams was decided, the Commissioner issued Rev. Rul. 61-221, 1961-2 C.B. 34, which announced his concurrence with the sleep or rest rule as in terpreted in Williams. 9 The Supreme Court in United States v. Correll...
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...Question 1. 1. Which of the following nominal rates does not apply to a C corporation? (Points : 1) | 15% 25% 34% 37% | Question 2. 2. A corporation had capital gains of $4,000 and capital losses of $6,000 during the taxable year. How many of those capital losses can the company deduct on its tax return? (Points : 1) | $0 $2,000 $4,000 $6,000 | Question 3. 3. What is the gain or loss on the sale of an asset for $70,000 if the asset cost $200,000, had $140,000 of depreciation expense deducted from its cost, and has a major capital expenditure during its life of $30,000? (Points : 1) | 0 $10,000 gain $20,000 loss $20,000 gain | Question 4. 4. What is the marginal tax rate for a C corporation with $200,000 of taxable income? (Points : 1) | 20% 34% 39% 38% | Question 5. 5. A corporation can carry a net operating loss back (Points : 1) | 1 year 2 years 3 years 20 years | Question 6. 6. John purchased a 40% interest in a partnership for $40,000 at the beginning of the year. At year-end, the partnership reported net income of $100,000 and distributed $10,000 cash to John. What is John's year-end basis? (Points : 1) | $40,000 $130,000 $90,000 $70,000 | Question 7. 7. Which of the following is not a characteristic of an S corporation? (Points : 1) | It is a flow through entity Owners increase their basis for debt taken by the S corporation Owner's participate in limited tax-free fringe benefits Owners increase...
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...Managerial Finance ; FIN515 1. What is the most important difference between a corporation and all other organizational forms? A corporation is a legal entity separate from its owners. 2. What does the phrase limited liability mean in a corporate context? Owners’ liability is limited to the amount they invested in the firm. Stockholders are not responsible for any encumbrances of the firm; in particular, they cannot be required to pay back any debts incurred by the firm. 3. Which organizational forms give their owners limited liability? Corporations and limited liability companies give owners limited liability. Limited partnerships provide limited liability for the limited partners, but not for the general partners. 4. What are the main advantages and disadvantages of organizing a firm as a corporation? The advantages would include limited liability, liquidity, and infinite life. The disadvantages are double taxation, separation of ownership and control. 5. Explain the difference between an S corporation and a C corporation. C corporations must pay corporate income taxes; S corporations do not pay corporate taxes, but must pass through the income to shareholders to whom it is taxable. S corporations are also limited to 75 shareholders and cannot have corporate or foreign stockholders. 6. You are a shareholder in a C corporation. The corporation earns $2 per share before taxes. Once it has paid taxes it will distribute the rest of its earnings...
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...goals when choosing a structure for their business these includes protecting their personal assets from business claims that is; limited liability and having business profits taxed on their individual tax returns. The recommendation for Bill and Darlene would be an S corporation. An S corporation is a regular corporation that has elected S corporation tax status. Forming an S corporation allows for the limited liability of a corporate shareholder; however income taxes are paid based on a structure of a sole proprietor or a partnership. In an S corporation, all business profits pass through to the owners, who report them on their personal tax returns as with a sole proprietorships, partnerships, and LLCs. An S corporation is not required to pay income tax but an S corporation with more than one owner an informational tax return must be filed as is the case with a partnership or LLC, to report each shareholder's portion of the corporate income. Most states including Connecticut follow the federal pattern when taxing S corporations. They don't impose a corporate tax, but choose instead to tax the business's profits on the shareholders' personal tax return (Pope, T. 2014. P. 27; nolo.com). The formation of an S corporation has its...
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