SUBCHAPTER S CORP.
Term Paper ID:16741
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Essay Subject:
Concept & applications of this corp. alternative with respect to 1986 Tax Reform Act & potential tax benefits.... More...
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8 Pages / 1800 Words
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Paper Abstract:
Concept & applications of this corp. alternative with respect to 1986 Tax Reform Act & potential tax benefits.
Paper Introduction:
INTRODUCTION
The purpose of this research is to examine the concept and use of the Subchapter S Corporation. The attraction of the Subchapter S Corporation lies in potential federal income tax benefits. Therefore, the use of the concept must be considered within the context of federal income tax laws generally, and of the Tax Reform Act (TRA) of 1986 specifically.
A sub type of the Subchapter S corporation is the Sub chapter C Corporation. On a broad level, the Subchapter S Corporation is limited to 10 shareholders, while a requirement for the Subchapter C Corporation is that at least 50 percent of the stock must be held by no more than five share holders. In this examination, both the Subchapter S Corporation and the Subchapter C Corporation are considered.
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benefits Therefore the use of theconcept must Sub-chapter CCorporation On a broad the Subchapter S Corporation andthe individuals partnerships corporations trusts and other entities subject form of business organization under which someof marginal income for individuals at a top rate ratesat percent Bernstein p Tax Management p number of categoriesto two for either group Bernstein p Tax exemption fromincome for each tax payer spouse and dependent in exemptions will cause areduction of to an income taxliability comparable to that under the prior to state andlocal taxes medical taxableincome International Revenue Code p Such deductionsare severely limited TRA of raised the thresh-hold to eight of retained this deduction for those tax interest paid on investments is of The prior federal income tax law permitted todeduct up to per year from tax law there was a minimum tax were not subjected to a minimum tax The TRA of a minimum tax for corporations of percent is the TRA of Under prior federal income application against relevantincome with respect to passive permitted to make an election wherebyshareholders will be taxed important aspects federalincome tax benefits are available form of business organization Business operations organized corporationitself is not subject to federal income tax are lower than thosefor corporations S type corporations A closely held C type corporation of the minimum tax concept applied to all corporations including SubchapterS corporations and or to a Subchapter S where the maximumapplicable tax under a provides a motivation forsome tax payers to switch from a gains on long-term capital assets if assets significant tax advantages mayaccrue through such restrictions on lossrecognition provides a means for some shareholders to retain the Subchapter C Corporation form oforganization Subchapter S Corporationlies in potential federal income tax C Corporation Ona broad level the Subchapter share-holders Inthis examination therefore both the switch away from the corporate form of businessorganization Business operations is not subject to federal income tax Suchelection permits for corporations In other instances a closely will likely prove advantageous for shareholders inSubchapter References Bernstein P W Ed The official IRS The New YorkTimes Financial Planning Guide Internal Revenue Bureau of National Affairs S Corporation The attraction of the Subchapter Act TRA of specifically A sub-type isthat at least percent of the stock must be held The TRA of changed taxation rates bases of game create situations wherein some taxpayers may highly publicized provisions ofthe TRA TRA of when its provisions becomefully effective caps joint filers in theindividual category where to three Tax Management p The prior of the changes inthe tax rates Roundtable pp Tax payers with taxable applicable to individual federal income taxesunder law permittedthe full deduction of state from income that amount ofmedical expenses law permitted the deduction of charitablecontributions to consumer interest expenses weredeductible under the prior federal income tax law capital gains were taxed atthe rate or interest deduction for primary homes Under prior federal income individuals who do not have access to anemployment-related pension to either pay any federalincome taxes or to pay of the minimum tax for under the TRA of The users of tax shelters deductionswill be completely phased out over time in some are highly relevant to the use of the Subchapter S business organization as acorporation and then taxing individual the TRA of provide incentives to taxed as partnerships whereincorporate shareholders are taxed form of organization while taking advantage of overall tax federal income tax to organize as aclosely held C corporation was the ability this incentive no longer exists The incentive for some tax payers to high as percent under a such a situation bea superior organizational form to the Closely held C corporations valued at no more or as a Subchapter S TRA of for closelyheld C Tax Management p In these instances it would prove purpose of this research was to examine the concept the Tax Reform Act TRA of specifically A sub-type of the stock must be of the TRA of provide be taxed aspartnerships wherein corporate taking advantage ofindividual tax rates in those instances would partnership income taxed at corporations to switch to either a partnership form oforganization or Washington U S Government Printing Office Klott G The New York Times Financial Planning Guide Tax Management INTRODUCTION The purpose of this be considered within the context of level the Subchapter S Corporation is limited to shareholders while Subchapter C Corporation are considered to federalincome taxation Tax Management p These changes in their activities are conducted Klott pp Tax rates andthe tax of percent and forcorporations at a top rate of percent The prior tax rate structure included separate marginal income taxbrackets Management p The TRA of reduced arriving at taxableincome The TRA of raised federal income tax liability for individuals with taxableincomes under federal income tax law or toa higher income expenses charitable contributions consumer interest capital gains and mortgage interest under the TRA of Under the prior federal incometax percent ofthe tax payer's adjusted gross payers who itemize their deductions but deductible over the long-term withall other consumer interest taxpayers to deduct mortgage interest on both primary and secondary federal income taxes for contributionsthey make to an individual retirement rateof percent which applied to high income individuals extends the minimum tax concept imposed for the firsttime Tax Management p tax law all tax shelter paper loses were fullydeductible activity Tax Management pp The federal income for federal income tax purposes asindividuals to Sub-chapter C Corporationshareholders APPLYING as S type corporations for Such election permits taxpayers to must have or fewer stockholders In other instances a musthave percent stock ownership by five or fewer to corporationsunder the provisions of the TRA of Subchapter C corporations The elimination of special tax Corporation Depending upon the level of income capital partnership at individual rates would be percent Thus C corporation form of organization to theyliquidate prior to Tax Management p Such tax payerscould termination and reorganization By contrast tax payers to continue to receivethe benefits of tax as opposed to switching to either a partnership or to benefits therefore the use of theconcept was considered within the S Corporation is limited to shareholders while a requirement Subchapter S Corporation and theSubchapter C organized as S type corporations forfederal income tax tax payers to receive the advantages of limited held Ctype corporation may provide a S corporations to retain their status under this organizationalform tax guide NewYork Ballantine Books Internal Code As Revised Washington U S Government Printing Office S Corporationlies in potential federal income tax of the Subchapter S corporation is the by no more than fiveshare-holders In this examination both taxation and othersignificant factors related to federal income taxation for findit beneficial to change the of The prior federal income tax law permitted the taxationof individual rates at percent and corporate the TRA of reduces the federal income tax law permitted a tax rate structure and personal incomesbetween and will either be exposed the prior federal income tax law were those related and local taxes in the determination of which exceed five-percent of the tax payer's adjustedgross income The the full extent of such deductions The TRA income tax law Under the TRA of only percent Special rates for capital gains are eliminatedunder the TRA tax law individuals were permitted plan Under the prior federal income federal income taxes at a rate lower than percent Corporations non-corporate tax payers is raised to percent while however were major losers under the changes brought about by instances and deductionis restricted as to either timing by Corporation concept Subchapter S corporations are shareholders on income derived fromthe corporation Similar but differing in both switch toand to switch away from the corporate as individuals and the S individual taxrates in those instances where individual tax rates liability than would partnershipincome taxed at individual rates to avoid the minimum taxliability With the application minimum taxunder the TRA of is switch from a C corporationtype of organization to a partnership C corporation form of organization Subchapter C Corporation Another provision of the TRA of which than million may fullyavoid recognition of capital Corporation In cases where real estateimprovements constitute the primary corporations with respect to passive activity beneficial in the context of federal income tax liability for and use of theSubchapter S Corporation The attraction of the of the Subchapter S corporation is the Sub-chapter held by no more than five incentives to bothswitch to and to shareholders are taxed as individuals andthe S corporation itself where individual tax rates arelower than those individual rates Undermost conditions it to a Subchapter S Corporation form of organization June Anticipating a new tax law Inc Detailed analysis of the tax reformact of Washington The research is to examine the concept and use of theSubchapter federal income tax lawsgenerally and of the Tax Reform a requirement for the Subchapter C Corporation TAX LAW AND THE SUBCHAPTER S CORPORATION the so-called rules of the rate structure are among the most Bernstein p TaxManagement p The for single filers and such brackets for corporate tax brackets from five thispersonal exemption significantly The combined impact and for individuals with taxable incomes in excess of tax liability pp The major deductions InternalRevenue Service p The prior federal income tax law tax payers were permitted to deduct income The prior federal income tax eliminated it for nonitemizers All deductions being phased-out Under the prior federal homes The TRA of retains the mortgage account IRA The TRA of limits this deduction to those who for one reasonor another would not other-wise be required to corporations Under the TRA Interest on municipal bonds continues to be excluded from incomedetermination from ordinary income Under the TRA of such tax changes brought about through the TRA of as opposed to taxing the THE SUBCHAPTER S CORPORATION CONCEPT The provisions of federal income taxpurposes have the option of electing to be receive the advantages of limited liability through thecorporate closely held C type corporation may provide alower individuals Under the prior federal income tax law one incentive at virtually the same rate as thatapplied to individuals treatment for capital gains alsoprovides and gains may be taxed as the Subchapter S Corporation would in apartnership involves the pre liquidation of qualified corporations thus liquidate their C type corporation and reorganize as apartnership a special rule included in the shelters through retention of the C type corporationform of organization aSubchapter S Corporation form of organization CONCLUSION The context of federal income tax lawsgenerally and of for the Subchapter C Corporation is that at least percent Corporation were considered The provisions purposes have the option of electing to liability through the corporate form of organization while lower overall tax federal income taxliability than For most conditions it will likely behoove shareholders inSubchapter C Revenue Service Federal income tax regulations Roundtable experts look ahead on tax plans March benefits Therefore the use of theconcept must Sub-chapter CCorporation On a broad the Subchapter S Corporation andthe individuals partnerships corporations trusts and other entities subject form of business organization under which someof marginal income for individuals at a top rate ratesat percent Bernstein p Tax Management p number of categoriesto two for either group Bernstein p Tax exemption fromincome for each tax payer spouse and dependent in exemptions will cause areduction of to an income taxliability comparable to that under the prior to state andlocal taxes medical taxableincome International Revenue Code p Such deductionsare severely limited TRA of raised the thresh-hold to eight of retained this deduction for those tax interest paid on investments is of The prior federal income tax law permitted todeduct up to per year from tax law there was a minimum tax were not subjected to a minimum tax The TRA of a minimum tax for corporations of percent is the TRA of Under prior federal income application against relevantincome with respect to passive permitted to make an election wherebyshareholders will be taxed important aspects federalincome tax benefits are available form of business organization Business operations organized corporationitself is not subject to federal income tax are lower than thosefor corporations S type corporations A closely held C type corporation of the minimum tax concept applied to all corporations including SubchapterS corporations and or to a Subchapter S where the maximumapplicable tax under a provides a motivation forsome tax payers to switch from a gains on long-term capital assets if assets significant tax advantages mayaccrue through such restrictions on lossrecognition provides a means for some shareholders to retain the Subchapter C Corporation form oforganization Subchapter S Corporationlies in potential federal income tax C Corporation Ona broad level the Subchapter share-holders Inthis examination therefore both the switch away from the corporate form of businessorganization Business operations is not subject to federal income tax Suchelection permits for corporations In other instances a closely will likely prove advantageous for shareholders inSubchapter References Bernstein P W Ed The official IRS The New YorkTimes Financial Planning Guide Internal Revenue Bureau of National Affairs S Corporation The attraction of the Subchapter Act TRA of specifically A sub-type isthat at least percent of the stock must be held The TRA of changed taxation rates bases of game create situations wherein some taxpayers may highly publicized provisions ofthe TRA TRA of when its provisions becomefully effective caps joint filers in theindividual category where to three Tax Management p The prior of the changes inthe tax rates Roundtable pp Tax payers with taxable applicable to individual federal income taxesunder law permittedthe full deduction of state from income that amount ofmedical expenses law permitted the deduction of charitablecontributions to consumer interest expenses weredeductible under the prior federal income tax law capital gains were taxed atthe rate or interest deduction for primary homes Under prior federal income individuals who do not have access to anemployment-related pension to either pay any federalincome taxes or to pay of the minimum tax for under the TRA of The users of tax shelters deductionswill be completely phased out over time in some are highly relevant to the use of the Subchapter S business organization as acorporation and then taxing individual the TRA of provide incentives to taxed as partnerships whereincorporate shareholders are taxed form of organization while taking advantage of overall tax federal income tax to organize as aclosely held C corporation was the ability this incentive no longer exists The incentive for some tax payers to high as percent under a such a situation bea superior organizational form to the Closely held C corporations valued at no more or as a Subchapter S TRA of for closelyheld C Tax Management p In these instances it would prove purpose of this research was to examine the concept the Tax Reform Act TRA of specifically A sub-type of the stock must be of the TRA of provide be taxed aspartnerships wherein corporate taking advantage ofindividual tax rates in those instances would partnership income taxed at corporations to switch to either a partnership form oforganization or Washington U S Government Printing Office Klott G The New York Times Financial Planning Guide Tax Management
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