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R.D. Barnett PLLC

S-Corporation Tax

Contact Us 206.347.8000

Generally, S-Corporations are not the preferred vehicle to hold an operating real estate asset.  Among the many reasons, their inflexible predisposition makes it difficult for a fund sponsor or developer to collect their carried interest.  The inability to allocate income and loss, no other way than, on a per-share, per-day basis can be a non-starter.  If that is not enough, the lack of basis, created through third party financing, often found in partnerships and LLCs does not apply – good luck trying to take depreciation deductions without a basis limitation. 

With all that said, S-Corporations are a solid entity choice for many property managers, contractors, sub-contractors, and some service providers.  Similar to a partnership, an S-Corporation provides protection from personal liability, along with the flow-through nature that reduces the double tax burden found in regular corporations.  One of the larger differences, and quite honestly one of the main drivers for selecting this entity, is the ability to reduce self-employment taxes - ask us how!

If you have a business already operating as an S-Corporation we are available to help you tackle the following issues, as well as, prepare your tax return…

  • Eligibility to do Business as an S-Corporation:  100 shareholder limit, one class of stock, and no other shareholders than individual U.S. citizen or resident, estates, certain trusts, and certain exempt organizations.
  • Electing to be an S-Corporation:  Timely elections with proper shareholder consents and qualified subchapter S subsidiary elections.
  • Terminating an S-Corporation:  Revocation of an S election, short period returns, allocation of income between tax years, avoiding termination, waiver of inadvertent termination, converting to an LLC, reverting back to C-Corporation, and carryover of attributes.
  • Planning for Operating Income:  Allocation of pass-through income on a per-share, per-day basis, nonseparately stated income or loss and separately stated items, qualifying stock disposition, adjusting basis by pass-through items, distributions not subject to self-employment tax, nonpassive or passive nature of investment, self-charged interest, and maximizing IRC Section 179 expense.
  • Monitoring Shareholder Basis and Losses:  Timing of deductions, obtaining valid basis in debt, making payments on debt rather than distributions, reducing shareholder salaries, at-risk and passive loss limitations, and avoiding gain on loan shareholder loan repayments.
  • Making Distributions to Shareholders:  Tax free distributions, minimizing taxable distributions, distributing property, and proportionate distributions.
  • Special Issues for S-Corporations:  Short tax years, fiscal years, cash method vs. accrual method, capitalizing costs, long-term contracts, U.S. producer deduction, business bad debts, and depreciation deductions.
  • Offering Fringe Benefits and Retirement Plans:  Insurance, cafeteria plans, transportation, adoption, pension and profit-share, educational assistance, dependent care, defined benefit plans, defined contribution plans, and SEPs and SIMPLE Plans.
  • Reorganizing and Recapitalizing S-Corporations:  Acquisitive, divisive, debt-for-equity swap, bankruptcy, insolvency, and change of identity, and form or place.
  • Disposing of Stock and S-Corporation Property:  Minimize tax consequences, plan for net investment income tax, stock sale vs. asset sale, prevent termination, and maximize suspended loss deduction.
  • Redeeming Shareholder Stock:  Capital and noncapital redemptions, terminate a shareholder interest, deferring gain, installment sale, and partial liquidations.
  • Liquidating an S-Corporation:  Impact on S-Corporation, impact on shareholder, and timing for tax savings.