Business Formation Tax Professionals
Located in Woodbury, New York
Our Enrolled Agents, CPAs, and attorneys are available to review your current business structure or establish a new one.
Common business entities include:
•Limited Liability Company
•Corporations (various categories)
There are distinct tax, financial and business advantages and disadvantages to each.
Business operating documents and agreements are critical to understanding obligations, responsibilities and liabilities for the shareholders/partners. Failure to file all necessary forms can result in serious tax, financial and other problems later on. While the future cannot be predicted, clauses in operating agreements can allow flexibility as business and owner needs change over time. There are also important considerations for spouses and family members working together. Business and personal/family matters should be clear to minimize potential disputes in the future.
If you own a business or are in the process of starting one, contact our Woodbury attorneys at the Stefans Law Group today to schedule an appointment to learn how we can help you.
Our attorneys are available to work with you to draft, review and update agreements and business policies.
C Corporations Electing S Corporation Status
If you are considering electing S corporation status, a C corporation should make every effort to carefully plan ahead. Here, it is important to remember that Congress enacted the built-in gains (BIG) tax in order to prevent C corporations from using S corporation status to circumvent a double tax assessed on corporate liquidations. In essence, the BIG tax requires companies to quantify unrecognized appreciation at the time an S election is made. Any C corporation that makes an S election must measure its fair market value from the date of its S election as compared to its tax basis. Selling loss assets to offset built-in gains is only one way to reduce a BIG tax liability. Reporting for the amount of a company’s unrecognized built-in gains is provided on page two of Form 1120S — the S Corporation Tax Return. If a company fails to properly calculate or provide this information, it may be liable under the BIG tax. As a result, your business could end up owing taxes on any unrealized profits for up to 10 years following your change to an S corporation. Our tax and business formation lawyers can carefully review your company’s financial situation in order to ensure that you make the transition to an S corporation with limited liability under the BIG tax.
Limited Liability Companies and S Corporations
At the federal level, there is no tax return for an LLC; rather, LLCs must choose to identify themselves as a particular business entity and file the appropriate forms accordingly. A single member LLC is a sole-proprietorship and must be filed on a Schedule C as part of your personal return. If an LLC is a partnership, you will need to file Form 1065, the partnership income tax return. Likewise, if an LLC self-identifies as an S corporation, it will need to file Form 1120S. Limited liability companies that choose to incorporate as an S corporation must also complete Form 2553, electing to be treated as an S corporation. Once you complete this form, the IRS will treat you as an S corporation. As the owner or operator of a Subchapter S corporation, it may be necessary for you to be on the payroll and pay and report your payroll taxes. Of course, your salary can be deducted as a business expense and any profit earned beyond necessary business expenses will not be taxed at the corporate level. As a Subchapter S corporation, profits and losses are passed along to shareholders through Schedule K-1 and included as income/loss on your personal 1040 tax return.
There are several tax implications for the choice of S-corporation or Limited Liability Companies as well as a number of financial issues that must be taken into consideration when electing S-Corporation status.