Chapter 1 Flashcards
Grantor Trust
Grantor treated as the owner for income tax purposes
Accumulated Earnings
Penalty tax
Minimum credit $250,000
20% of all accumulated taxable as income
How to avoid double taxation
Reasonable compensation
…salaries
…benefits
Partnership Basis + and -
+ Distributive Share
- Distribution Received
= 0
Joint and Several Liability
General partner is always ultimately individually liable for claims against partnership
LLP
Limited liability for all partners
General partners also have limited liability
NII Exclusions
Trade or Business Income - Active Participant Self employment income Sale -- Partnership, LLC, S Corp IRA Distribution Tax Exempt Interest
Distributive Share
Amount of net income
Schedule K1
Determined by partnership agreement
Pass Through Taxation
Business income will be taxed directly to the business owners on their tax returns
Sole Proprietorship
A/D
NO Double Taxation
Unlimited Liability
Transferability
Partnerships
A/D
NO Double Taxation
Liability Limits
Available Credit
GP = Unlimited Liability
Formation can be expensive
LLC
A/D
Limited Liability
Unlimited members
No Double taxAtion
Multi Class
Complexity
Formation is expensive
Sharing control
S Corp
A/D
Limited liability
Perpetual life
No double taxation
Expensive 100 or less shareholders 1 class Domestic US Citizen or Resident Alien
NII
Net Investment Income
.9% Medicare
3.8% NII
MAGI - $200,000/250,000
Interest, Dividends, Non-Q Annuity, Royalties, Rent, Capital Gains
C Corp
A/D
Limited Liability
Employee benefits
Perpetual life
DOUBLE TAXATION
Expensive
Forms of Business Organization
Unincorporated ...Sole P ...Partnership ......General ......Limited ...LLC
Incorporated —- C and S
Limited Partnership
Partner - Responsibility
General
Personable liable
Day to Day
Limited
Limited only to investment
Passive
LLC Taxation
Pass through
LLC Start Up Forms
Articles of Origination
Operating Agreement
Corporate Form
Separate legal entity
Can borrow…may require loan guarantee
Advantage…ability to raise capital by expanding equity base
Cost Basis in Partnership Formation
Partnership Interest will equal
Cash
Adjusted Cost Basis with respect to the partner for any property contributed
Life Insurance Premiums…tax deductible?
NO
