2A Overview; Stakes and Comparison of S Corporation Regime
(1) First, as a sole proprietor, A will pay $350,000 in tax and have $650,000 left. Second, as a C corporation (or S corporation) paying out all net earnings as salary, the corporation will pay no income tax and thus theoretically could pay out the entire $1 million (disregarding employment taxes and local taxes), in which case A again will net $650,000. This, however, may not be possible or desirable, and part of such salary could be recharacterized as a dividend (but since 2003, taxation as a dividend is only 15 percent). Third, if $500,000 is paid to A as salary, then A will net $325,000 on $500,000 income and the corporation will net $325,000 on $500,000 income (note that because this is a personal service corporation, the lower brackets are not available under § 11(b)(2)). A can appropriate the retained earnings of $325,000 to his personal use by a dividend from which A will net $275,000, for a total net to A of $600,000, or by a sale of the stock, in which we assume A has nominal basis, for $325,000 resulting in a capital gains tax of $50,000 and a total net to A of $575,000. Thus, while A may be able to approximate his sole proprietorship result by using a C corporation paying out virtually all earnings in salary, an accumulation in X coupled with payment of the second-tier tax on that accumulation (even at the lower 15 percent) will result in the short term in a lower net return to A than if A had used a sole proprietorship. For the longer term, see question (2) B&E ¶¶ 1.02, 1.03, 5.01.
Discuss the lack of capital gain benefit for a C corporation taxpayer, and the limitation of use of capital losses. B&E ¶ 5.01.
An S election avoids double taxation of accumulated income and concern about having to pay salary equal to net earnings. Briefly discuss the following:
1. Eligibility for S election (§§ 1361(a) and 1361(b)).
2. Computation but nontaxability (normally) of income at the corporate level (§§ 1363(a) and 1363(b)).
3. Pass-through of income (here, $1 million) to A, if no salary is paid. Reasonable salary payments will help avoid a surprise assessment of employment taxes (§§ 1366(a) and 1366(b)) based on recharacterization of distributions as salary. Rev. Rul 74-44, 1974-1 CB 287.
4. Limitation on loss pass-through to basis in stock and debt §1366(d)(1)).
5. Increase in stock basis for S corporation income and decrease for distribution that is not included in shareholder’s gross income. Here, if $1 million is distributed, then there is no change in stock basis whether the $1 million is paid as salary or on account of stock held; if $500,000 is paid as salary and $500,000 is retained, then $350,000 of tax is paid by A on the entire $1 million–half as salary and half as pass-through income–and there is $500,000 additional basis in stock, as that the remaining $500,000 may be distributed without additional tax (§§ 1367(a), 1367(b), 1368(a) and 1368(b)).
6. Fact that otherwise subchapter C rules apply (§ 1371(a); B&E ¶¶ 6.01, 6.02, 6.06, 6.09)

The post THE CORPORATION INCOME TAX appeared first on Versed Writers.

Calculate your paper price
Pages (550 words)
Approximate price: -

Why Work with Us

Top Quality and Well-Researched Papers

We always make sure that writers follow all your instructions precisely. You can choose your academic level: high school, college/university or professional, and we will assign a writer who has a respective degree.

Professional and Experienced Academic Writers

We have a team of professional writers with experience in academic and business writing. Many are native speakers and able to perform any task for which you need help.

Free Unlimited Revisions

If you think we missed something, send your order for a free revision. You have 10 days to submit the order for review after you have received the final document. You can do this yourself after logging into your personal account or by contacting our support.

Prompt Delivery and 100% Money-Back-Guarantee

All papers are always delivered on time. In case we need more time to master your paper, we may contact you regarding the deadline extension. In case you cannot provide us with more time, a 100% refund is guaranteed.

Original & Confidential

We use several writing tools checks to ensure that all documents you receive are free from plagiarism. Our editors carefully review all quotations in the text. We also promise maximum confidentiality in all of our services.

24/7 Customer Support

Our support agents are available 24 hours a day 7 days a week and committed to providing you with the best customer experience. Get in touch whenever you need any assistance.

Try it now!

Calculate the price of your order

Total price:

How it works?

Follow these simple steps to get your paper done

Place your order

Fill in the order form and provide all details of your assignment.

Proceed with the payment

Choose the payment system that suits you most.

Receive the final file

Once your paper is ready, we will email it to you.

Our Services

No need to work on your paper at night. Sleep tight, we will cover your back. We offer all kinds of writing services.


Essay Writing Service

No matter what kind of academic paper you need and how urgent you need it, you are welcome to choose your academic level and the type of your paper at an affordable price. We take care of all your paper needs and give a 24/7 customer care support system.


Admission Essays & Business Writing Help

An admission essay is an essay or other written statement by a candidate, often a potential student enrolling in a college, university, or graduate school. You can be rest assurred that through our service we will write the best admission essay for you.


Editing Support

Our academic writers and editors make the necessary changes to your paper so that it is polished. We also format your document by correctly quoting the sources and creating reference lists in the formats APA, Harvard, MLA, Chicago / Turabian.


Revision Support

If you think your paper could be improved, you can request a review. In this case, your paper will be checked by the writer or assigned to an editor. You can use this option as many times as you see fit. This is free because we want you to be completely satisfied with the service offered.


WeCreativez WhatsApp Support
Our customer support team is here to answer your questions. Ask us anything!
? Hi, how can I help?