Planning an S corporation shareholder's estate without losing the election

Article Abstract:

Estate plans are flexible vehicles for holding S corporation stock and allow unique planning opportunities offering estate liquidity and beneficial tax advantages. An estate can diffuse S corporation income between itself and beneficiaries; can achieve income tax deferral by choosing a fiscal year other than that of the S corporation; and achieve significant tax savings through income splitting among shareholders. The lack of time limits on the holding of S corporation stock allows for the extended payment of estate taxes. Additionally, a qualified subchapter S trust can distribute cash to the estate to fund estate tax liability with no realization of distribution gains. This provides the estate with a source of funds to pay estate taxes without liquidating the corporation or selling stock.

Analysis, Tax accounting

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Should owners of a growing business make an S election?

Article Abstract:

The tax benefits offered by an S corporation election has decreased since the top federal income tax rate on individuals became higher than the top corporate tax rate in 1993. The top individual tax rate is currently 39.6% while the top corporate tax rate is 35%. The former was lower than the latter between 1988 and 1992, thus an S election was an effective strategy for qualified company owners to obtain substantial tax savings. Given the current corporate tax regime, business owners looking to save tax dollars should think very carefully before they seek an S corporation status. The C vs. S corporation decision is particularly important to growing businesses that invest their earnings in capital expansion and that do not intend to pay dividends in the near future.

Growth companies

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Should a small business make the S election after the Tax Reform Act of 1986?

Article Abstract:

The principles of tax planning for small or closely held businesses have been changed by the Tax Reform Act of 1986. Small businesses can avoid higher corporate tax rates and double taxation on the proceeds from the sale of a business by electing to be an S corporation. It may be preferable, however, to elect C corporation status. Benefits of being a C corporation include income deferral and more flexibility in designing qualified benefit plans.

Prevention, Small business, Close corporations, Closely held corporations, Double taxation

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