Tax Compliance and Planning for Flow-Through and Other Entities

Question 1

Built in gains tax

Answer 1

If a contributed asset to the business is sold within 5 years.

BIG tax is lesser of actual gain on sale or the built in gain at conversion. Tax rate 21%.

Question 2

Hot assets

Answer 2

In partnerships and LLCs, unrealized receivables and appreciated inventory can be recognized as ordinary income rather than capital gain.

Question 3

C Corp estimated tax payments

Answer 3

Smaller tax rule: lesser of 100% of prior year or current year estimated income. Dividend by four for each quarter.

Question 4

S Corp distribution order

Answer 4

First, AAA (nontaxable)

Then, AEP (taxed as dividend income, GR: preferential capital gains rates)

Finally, return of capital to the extent of shareholder’s stock basis. Excess treated as capital gain.