What situations would result in double taxation for shareholders of an S Corp?
One of the large tax advantages that an S corporation will have is that it is not subject to double taxation similar to the manner that C corporations will be taxed (both the entity level and the shareholder level). There are three specific exceptions that you should be aware of in which S corporations will be taxed at the entity level in addition to the shareholder level: Built-in gains, LIFO recapture, and tax on passive investment income.
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What is the tax on passive investment income for an S Corporation?
S corporations will be subject to income taxes at the entity level and the shareholder level on the lesser of net income or excess passive investment income assuming the following exist: A) The S corporation has accumulated C corporation earnings and profits from the time period prior to electing S status (period of existence as...
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What is LIFO recapture for an S Corporation?
When converting from a C corporation to an S corporation, and that C corporation had previously recognized its inventory using the LIFO (last in, first out) method, it must include its excess of FIFO (first in, first out) over its LIFO inventory in the C corporation’s final tax return before its conversion to S status.
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What is a built-in gain for an S corporation?
In the event that a previously recognized C corporation elects to convert and be treated as an S corporation, they could be subject to “built-in taxable gains” that will be taxable at the entity level. The built-in gains will be imposed on the appreciation that occurred on all assets that were held during the time...
What is the tax on passive investment income for an S Corporation?
S corporations will be subject to income taxes at the entity level and the shareholder level on the lesser of net income or excess passive investment income assuming the following exist: A) The S corporation has accumulated C corporation earnings and profits from the time period prior to electing S status (period of existence as...
What is LIFO recapture for an S Corporation?
When converting from a C corporation to an S corporation, and that C corporation had previously recognized its inventory using the LIFO (last in, first out) method, it must include its excess of FIFO (first in, first out) over its LIFO inventory in the C corporation’s final tax return before its conversion to S status.
What is a built-in gain for an S corporation?
In the event that a previously recognized C corporation elects to convert and be treated as an S corporation, they could be subject to “built-in taxable gains” that will be taxable at the entity level. The built-in gains will be imposed on the appreciation that occurred on all assets that were held during the time...
