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Business Organizational Plan: S CorporationsTiffany CoffeySouthern New Hampshire UniversityTAX 655
To: Bob JonesFrom: Tiffany CoffeySubject: Business Organizational PlanDate: 5/8/2016It is my recommendation that Bob forms an S Corporation for his business as it consists of the various appealing tax benefits and still provides the business owner with the liability protection. For federal tax purposes, the S corporation is treated as a pass-through entity and can be beneficial when it comes time to transfer ownership to his daughter Mandy (26 USC§1361C). Whether you use the accrual or cash accounting method determines the time at which yourecognize your revenues and expenses, (26 USC§446C). With the cash method, you record your revenues and expenses in the year you actually pay out or receive the money. With the accrual accounting method, you record your revenues and expenses in the year you incur them. However, you have to report the purchase this year and consider it this year's expense. The law states that a corporation that has gross receipts more than $5 million and maintains inventory must use the accrual accounting method. Bob stated that he has inventory worth $12,000,000 it isadvised that he use the accrual accounting method.To form an S corporation, you will be required to file a few official state and federal documents, including Articles of Incorporation with the state of Florida, corporate minutes and pay the appropriate fees. You will pay an annual report fee each year on your corporation anniversary date. Because you will incur these expenses the good news you can deduct on your taxes as a cost of doing business. Once you select to change your business to an S corporation,
you will be required to file various tax schedules and forms including IRS form 2553 and form 1120S U.S. income tax return for an S corporation.S-corporation offers many tax benefits such as self-employment taxes. When you are self-employed, you'll usually have to pay higher Social Security and Medicare taxes, collectively,than if you were an employee of a company. One way to help avoid these higher taxes is to organize your business as an S-corporation. When you are an employee for someone else you’re only responsible for part of these taxes, however when you are self-employed you have to pay both portions of this tax.The upside you will end up lowering your overall tax liability. The limited liability protection of an S corporation is a great advantage for business owners. Only the money you invest in the corporation is at risk. All your personal assets are protected as this type of entity is considered a pass-through entity and are not taxed. As an S corporation you will eliminate double taxation and Bob and Mandy can be employees of the corporation and draw a salary as an employee of the company. In the event, something was to happen to Bob the transfer of ownership to Mandy will not have any adverse tax consequences.
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Corporation, Taxation in the United States, S corporation