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	Business Tax Returns Topic List Business Tax Return Analysis: A Banker’s Perspective The following outline lists the main topics covered in this two-day course. For general information about who should take this course, why, and what it will cost, visit the course description page. Regular (‘C’) Corporations Case study - Anytown Medical Clinic, PA Definition and types of C Corporations Professional service providers Non service businesses Personal holding company Taxable entity in its own right Tax planning to mitigate the corporate income tax Accounting methods for tax preparation: Cash method usually preferred - tough to secure for tax Using related party transactions Real estate owned outside the operating corporation Using compensation to shareholder/employee to manage taxable income Pitfalls - “unreasonably high compensation”; remedies Picking the taxable year - chasing the deferral feature Using the tax return balance sheets - “shenanigans” played and identified; undoing them is the key No Questions Asked cash flow card applied to the C Corporation Using the Heads Up card for the C Corporation S Corporations Case study - ALB Enterprises, Inc. (closely held manufacturer) Pass-through entity concept applied to the S Corporation Definition and eligibility requirements: Limited number of shareholders Limitations on types of shareholders One class of stock Making the S election Terminating the S election once made: Voluntary termination Involuntary termination S Corporation status during the business life cycle: Start-up phase Growth phase Mature phase Accumulated earnings tax - partial remedy is to elect S status Accounting methods used for the tax return, and taxable year end issues Corporate alternative minimum tax - not at the entity level for the S Corporation “Unreasonably low compensation” issues for the S Corporation - trying to skirt the payroll taxes Distributions to the shareholder: Cash and other property When is the distribution taxable, or nontaxable? Accumulated adjustments account (AAA) - what it is and what it does Dividend from an S Corporation - when it happens Limiting distributions in the loan agreement - careful with your choice of terminology Loan agreements with S Corporations - different from C Corporations by design S Corporation as a ”Wanna be LLC”: Why? How can the S Corporation become a Limited Liability Company? Possible, but costly from a tax perspective Planning for the transition over time using related party entities Using the tax return balance sheets - “shenanigans” played and identified; undoing them is the key Using the Schedule K-1: Distributions to the shareholder Share of liabilities - recourse and other No Questions Asked cash flow card applied to the S Corporation Using the Heads Up card for the S Corporation Limited Liability Companies Case studies available: Aden Software, LLC (closely held software developer) Alex Real Estate Development, LLC (closely held real estate development) Definition and eligibility requirements: Unlimited number of owners (members) No limitation on types of shareholders As many classes of ownership as desired (unique tax planning tool) One owner and multiple owner limited liability companies Choice of taxation One owner LLC - corporation or sole proprietorship Multiple owner LLC - corporation or partnership Pass-through entity concept applied to the multiple owner Limited Liability Company choosing partnership taxation Documentation Managing the limited liability company: Management class (or manager(s)) created Absent a management class Binding the limited liability company to its debt: The documentation determines who may bind the LLC to debt LLC borrowing resolution Existing entities switching to Limited Liability Company format: Possible, but not always practical Structuring a gradual transition Allocation of profits, losses, and other items: More flexible than an S corporation - good for the owner More difficult to monitor for the lender Distributions to the member: Cash and other property When is the distribution taxable, or nontaxable? Tax basis of ownership interest is the key: How tax basis is calculated How it’s used - a grand loophole remains to help inflate the tax basis Limiting distributions in the loan agreement - careful with your choice of terminology Loan agreements Special allocations are possible with the limited liability company Exclusive tax benefit for the multiple owner limited liability company choosing partnership taxation - tax planning doesn’t get any better than this! Optional basis adjustment when new capital comes to the LLC Write up the tax basis of the assets to fair market value on the tax return balance sheet Enhanced future depreciation deductions for owner providing the new capital Using the tax return balance sheets - “shenanigans” played and identified; undoing them is the key Using the Schedule K-1: Distributions to the shareholder Share of liabilities - recourse and other No Questions Asked cash flow card applied to the limited liability company Using the Heads Up card for the limited liability company General Issues Asset acquisition issues - lease verses purchase: Advantages/disadvantages of lease and purchase - including the tax consequence Lease may suggest undisclosed obligation Financial statement presentation compared to tax return preparation Two separate and distinct objects Reconciling the two approaches; using the tax return Schedule M-1 Getting the most useful information from both approaches © 2008 BankSems LLC All Rights Reserved Unauthorized use of material on this website is strictly prohibited.







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Business Tax Returns Topic List