S corporation selection
Brian Ladenheim
Tax Strategy Case Study
ACC 750
Date: 10/11/13
MEMO:
To: Moe, Larry, and Curly
From: Brian Ladenheim
Date: 10/11/13
Subject: Entity Selection on Oliveology
Congratulations on your newest venture. We know you have a lot of options when choosing a consultant and are thrilled we will be able to assist you. We understand you are contemplating the entity of choice for your company. After immense research we have come to the conclusion the best option for Oliveology is to be an S Corporation. There are many benefits of this entity status. One of the largest benefits is no double taxation. The shareholders are only taxed at the shareholder level. Also, unlike a partnership, where all the partners are subject to self-employment tax on income from the firm, only wages earned are subject to a self-employment tax in an S corporation. In an S corporation shareholders may be employees, and the wages paid are deductible from the net income but are also subject to payroll taxes and therefore you may be inclined to pay lower wages to avoid this tax. Keep in mind though, that if you understate your wages from normal industry salaries the IRS may require you to pay higher salaries relative to the industry and position. Nevertheless, if prepared properly, this rule should only be beneficial. Another large benefit of the S Corporation status is that it stands alone separate from its shareholders. If any of you decide to leave the company for any reason, then the company can continue to run its daily business without much interruption.
The shareholders receive their pro rate share of profits and pay tax based on their personal income tax rates, although actual cash distribution is irrelevant when defining your taxable income. Moreover, loses from the firm are deductible to the extent of your investment. Furthermore, if ever the firm cannot pay its debts, any creditors would have no claim against your personal assets.
Unfortunately, there are
Tax Strategy Case Study
ACC 750
Date: 10/11/13
MEMO:
To: Moe, Larry, and Curly
From: Brian Ladenheim
Date: 10/11/13
Subject: Entity Selection on Oliveology
Congratulations on your newest venture. We know you have a lot of options when choosing a consultant and are thrilled we will be able to assist you. We understand you are contemplating the entity of choice for your company. After immense research we have come to the conclusion the best option for Oliveology is to be an S Corporation. There are many benefits of this entity status. One of the largest benefits is no double taxation. The shareholders are only taxed at the shareholder level. Also, unlike a partnership, where all the partners are subject to self-employment tax on income from the firm, only wages earned are subject to a self-employment tax in an S corporation. In an S corporation shareholders may be employees, and the wages paid are deductible from the net income but are also subject to payroll taxes and therefore you may be inclined to pay lower wages to avoid this tax. Keep in mind though, that if you understate your wages from normal industry salaries the IRS may require you to pay higher salaries relative to the industry and position. Nevertheless, if prepared properly, this rule should only be beneficial. Another large benefit of the S Corporation status is that it stands alone separate from its shareholders. If any of you decide to leave the company for any reason, then the company can continue to run its daily business without much interruption.
The shareholders receive their pro rate share of profits and pay tax based on their personal income tax rates, although actual cash distribution is irrelevant when defining your taxable income. Moreover, loses from the firm are deductible to the extent of your investment. Furthermore, if ever the firm cannot pay its debts, any creditors would have no claim against your personal assets.
Unfortunately, there are