《税收概述》（英文版） Chapter 2 Chaporate formations and capital

心ti EUC

1 Chapter 2: Corporate Formations and Capital Structure

CORPORATE FORMATION Alternative business forms Check-the-box requlations Legal requirements for forming a corporation 8351 deferrals Choice of capital structure Worthless stock or debt obligations

2 CORPORATE FORMATION Alternative business forms Check-the-box regulations Legal requirements for forming a corporation §351 deferrals Choice of capital structure Worthless stock or debt obligations

Forms of business Sole proprietorships Partnerships Corporations Limited liability companies Limited liability partnerships 3

3 Forms of Business Sole proprietorships Partnerships Corporations Limited liability companies Limited liability partnerships

Sole Proprietorship (1of2) One owner Not a separate entity ncome reported on Sch C of 1040 No limited liability Tax advantages Profits taxed once No tax on contributions or withdrawals Losses other income(with limitations)

4 Sole Proprietorship (1 of 2) One owner Not a separate entity – Income reported on Sch C of 1040 No limited liability Tax advantages –Profits taxed once –No tax on contributions or withdrawals – Losses other income (with limitations)

Sole Proprietorship (2of2) Tax disadvantages Profits taxed as earned Owner not emplovee >>Profits subject to SE tax >No tax-free fringe benefits No fiscal year deferral 5

5 Sole Proprietorship (2 of 2) Tax disadvantages –Profits taxed as earned –Owner not employee »Profits subject to SE tax »No tax-free fringe benefits –No fiscal year deferral

Partnerships (1of3) Two or more owners Conduit entity Reports, but does not pay income tax No limited liability Except for limited partners 6

6 Partnerships (1 of 3) Two or more owners Conduit entity –Reports, but does not pay income tax No limited liability –Except for limited partners

Partnerships (2of3) Tax advantages continued Losses other income(with limitations) Income retains its character Income/gain increases basis

7 Partnerships (2 of 3) Tax advantages continued – Losses other income (with limitations) – Income retains its character – Income/gain increases basis

Partnerships (3of3) Tax disadvantages Profits taxed as earned Partners not employees >>Profits subject to SE tax >No tax-free fringe benefits Fiscal year deferral difficult to obtain 8

8 Partnerships (3 of 3) Tax disadvantages –Profits taxed as earned –Partners not employees »Profits subject to SE tax »No tax-free fringe benefits –Fiscal year deferral difficult to obtain

Corporations (1of2) Separate taxpaying entity Limited liability Tax advantages - Tax rates start at 15% Shareholders may be employees 》 No SE tax ))Eligible for tax-free benefits May exclude 50% of gain on stock sale if certain requirements met 9

9 Corporations (1 of 2) Separate taxpaying entity Limited liability Tax advantages –Tax rates start at 15% –Shareholders may be employees »No SE tax »Eligible for tax-free benefits – May exclude 50% of gain on stock sale if certain requirements met

Corporations (2of2) Tax disadvantages Double taxation of income >Corp and s/h level Withdrawals(dividends) taxable NOLs cannot be used in current year Capital losses cannot offset ordinary Income 10

10 Corporations (2 of 2) Tax disadvantages –Double taxation of income »Corp and s/h level –Withdrawals (dividends) taxable –NOLs cannot be used in current year –Capital losses cannot offset ordinary income