Chapter 141

University of Wisconsin, Whitewater **We aren't endorsed by this school
Oct 19, 2023
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Chapter 14 - Check the box o Businesses and the IRS didn't agree on what type of business they were Are you corporation, sole proprietor, partnership? o Depending on the type of entity you are is how you are taxed o 8832 tax form When you start your business you have to check the box next to what type of business you are This will determine how you are taxed If you choose to not fill out an 8832 you are deemed a sole proprietor, and the business activities go on a schedule c Sole proprietor has all the liability Should open a separate business so it does have to go to schedule c o LLC Limited liability company Not a tax designation No such thing as being taxed as an LLC State designation, have to register with a state Wisconsin LLC Taxed the same as a partnership IRS cares how you are taxed If you start your own LLC and take out a loan and do not repay loan Bank will go for owner Doesn't guarantee that you won't have any liability Put up an LLC and put little money in it Court will go after person o Sole proprietorship Tax-exemp fringe benefits are not available to them and the benefits are classified as compensation Income passes through the owners and is only taxed at that level o Partnerships General Limited liability partnerships Purpose is to remove liability from people who are actually doing the work from malpractice o Corporations Limited liability C Corps Regular corporations Most common with large publicly trade entities Losses do not pass through to shareholders Easier to raise funds Double taxed
o Dividend o If pay wages to everyone no double tax S Corps Electing corporations Taxed under sub chapter s Handled like partnerships - SS1001 o Whenever you exchange two things, you have to recognize some gain which will be taxable - Section 351 o Have to transfer property Tax code says what is not property Section 351(d) Service is not property If you do not meet section 351, SS1001 says that loss/gain is recognized as income on income statement o In control If you don't know who is in control keep reading Have to define control 80% needed to meet section 351 o Soley in exchange for stock If you transfer something (a car) with stock, have to at least exchange stock The extra something is called boot which is taxable Have to define stock Nonqualified preferred stock is not treated as stock o Nonqualified preferred stock is defined in sec. 351(g)2 If interest rates are included then it is a nonqualified preferred stock which does not meet sec. 351 o Immediately after Not defined - leads to lawsuits About 30 days Hold for at least 30 days are eligible for sec. 351 - Tax attributes of clients o Basis Sec. 358 Distributees/shareholders Outside basis o The basis the shareholders has in the corporation o The price you paid for the stock Sec. 362 corporations Inside basis o Corporations' basis in assets it owns o Corporation owns a building that building is a basis
Need to know basis to know gains - Boot o Adding something extra into a transaction o Might trigger a gain won't trigger a loss o Section 351 Gain defer provision Cant use 351 to trigger a loss Section 351(b) If you meet the requirements of 351 you can't opt out, it is mand atory o Can't use boot to get out of 351 - Section 108 o Someone forgives your debt that is income to you o If someone takes on your debt its income to you o Transfer a building with a liability (mortgage) Discharged debt that you took on and is now income Section 357 Not income - Holding periods o Hold stock for less than a year and sell it, short-term, taxed at ordinary rates o Hold stock for more than a year, long-term, taxed lower rates o The corporation tacks on the shareholder's holding period in the assets transferred o Section 1223 If transferred it is the same holding period as the previous owner Holding period is "Tacked" If the pervious asset had a short-term holding period, the shares it gets back would also be short-term - Carryover over basis o Whatever the basis was in the hands of the person or entity that exchanged property or stock you get the same basis, no gains or losses or liabilities exchanged
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