What factors must be considered when determining how the distribution is treated for tax purposes by the shareholder?
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Discuss how to structure corporate distributions in a manner that minimizes the tax consequences to the parties involved.
Prompt: Peppertree Corporation is planning to make a distribution to its three shareholders: Larry, Curly, and Moe. What factors must be considered when determining how the distribution is treated for tax purposes by the shareholder?
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- Select one of the questions to discuss with your classmates: Explain the role that earnings and profits play in determining the tax treatment of distributions. Describe the tax treatment of dividends for individual shareholders. Find an example of a corporation that has a dividend program and share its approach to dividends.Provide a summary of how tax levies may be imposed on C or S Corporations. Provide a rationale for your responses.A shareholder has a personal service business corporation. What rate of federal tax may be expected on net income?
- You are the lead S-Corporations tax specialist in your area. Your client, Cathyrn, has purchased an S Corporation and needs to be versed on how this type of corporation works. Identify three operating issues (e.g. accounting period, income/loss allocation, operating/liquidating distributions, stock basis calculations, fringe benefit rules) that Cathyrn should be aware of in managing this form of business.Select the best term for each definition below. Definitions Terms a. Shareholders can lose no more than the amount they invest in the company. b. Corporate earnings are taxed twice—at the corporate level and individual shareholder level. c. Like an S corporation, but there are no limitations on the number of owners as in an S corporation. d. Traces the line of authority within the corporation. e. Allows for legal treatment as a corporation, but tax treatment as a partnership. f. Has stock traded on a stock exchange such as the New York Stock Exchange (NYSE). g. The first time a corporation issues stock to the public. h. Describes (a) the nature of the firm’s business activities, (b) the shares to be issued, and (c) the composition of the initial board of directors.Whilst looking at the income tax returns applicable to corporate entities, Jackie was curious why there is a need for tax-exempt entities to still file for their ITR given that they are already exempted. Being a lamb to your friend, which of the following would best provide reason for such? A. for assessment of the correctness of mathematical computations made by taxpayer B. for comparison of figures reported on their financial statements C. for conversion of the supposed tax burden to filing burden D. for possible tax exposures from the conduct of unrelated activities
- Taxes affect many financial decisions. Explain how (a)interest and dividend payments are treated for tax purposes, from both a company’s and an investor’s perspective, and (b) how dividends and capital gainsare treated for tax purposes by individuals. In youranswers, explain how these tax treatments influencecorporations’ and investors’ behavior1. List and describe the four corporate characteristics. 2. Give an example of pass-through taxation and double taxation. Which characteristics does a sole proprietorship or partnership have and how are they taxed? 3. 4. Which of the corporate characteristics does an S-corporation have and how are they taxed? 5. What limitations are S-corporations subject to? 6. Which corporate characteristics does a Limited Liability Company Have and how are they taxed? 7. Discuss the agency problem between the firm's owners and the firm's managers. How can the firms' owners minimize this agency problem?How is Gross Income defined in the Tax Code and what are the implications to individual and business taxpayers? Name several examples of gross income for individuals and for corporations. Also, discuss the concept of Adjusted Gross Income for Individuals and provide two examples of deductions from gross income to arrive at AGI as well as two examples of deductions from AGI to get to taxable income. What are the three fundamental and general requirements in order to deduct business expenses for tax purposes? What is your opinion of these general requirements and support that opinion?
- What Income tax issues must a corporation consider before it makes a noncash distribution to a shareholder?Is it possible for shareholders to defer or avoid the second level of tax on corporate income altogether? Briefly explain.If you were seeking an entity with the most favorable tax treatment regarding (1) the number of owners allowed, (2) the flexibility to select your accounting period, and (3) the availability of preferential capital gains rates when selling your ownership interest, which entity should you decide to use? A. C corporation. B. Sole proprietorship. C. Partnership. D. S corporation.