Frequently Asked Questions
Answers to common tax and legal questions often asked by our clients
Can a C-Corp create an LLC and purchase stock in an S-Corp to circumvent the regulations preventing a C-Corp owning shares in an S-Corp?
Answer:
In short, yes. a corporation (entity type) that has taken a c-election (tax election) can be the sole member of an LLC which owns all the shares of another corporation (entity type) that has taken an s-election (tax election) – but the LLC must not elect to be treated as a disregarded entity.
Note that entity type (LLC, corporation, sole proprietorship, general or limited partnership) has nothing to do with the tax election. An LLC (the entity) can just as easily file to be treated as an s-corporation (tax election) without having to be a corporation. I hope I’ve made this concept clear to you, as it allows you to just as easily own the LLC that is treated as an s-corp, without the need for the LLC and the s-corp.
-Perla Diaz, Blue Pearl Bookkeeping & Tax
What are the benefits of turning rental property into a corporation?
What are the benefits of turning a rental property into a corporation other than a liability standpoint? I am concerned with not being able to get a substantial return at the end of each year for the losses as I do now. I am not making money on this specific property and either break even or suffer a loss. I am concerned when switching I will be unable to get my a decent return. Would you recommend leaving it as is?
Answer:
I would almost NEVER recommend using the C-Corporation, because of the double taxation associated AND the inability for you to use losses personally.
However, the LLC ( a pass through, just like a sole proprietorship) would give you the corporate liability of a corporation … but the income and losses flow through to your personal return. Neither the LLC, the S-Corp nor the partnership pays their own taxes (only C-Corps and Irrevocable trusts pay their own taxes at corporate rates and trust rates, respectively). That’s why we call them pass-throughs. The partnership and the S-Corp use a K-1 to pass the income, loss, capital gain, capital loss to the personal return.
So, the short answer I would say is yes, that the corporate protection is just really a liability issue (for the passthrough) and for the C-Corp would likely HURT you tax-wise because of the double taxation and inability to use the losses on your personal return at all… If you would like any further guidance on this I strongly suggest you speak with an expert on a one-on-one basis.
-Perla Diaz, Blue Pearl Bookkeeping & Tax
I just received a letter from the IRS notifying me that I owe money from my 2015 Tax Return. This amount was a death distribution from my mother’s retirement account who had passed away in 2015. How should I have filed this distribution?
Answer:
It depends on the IRA. A traditional IRA would have the same amount under Gross Distribution (Line 1) as Taxable Amount (Line 2a). A Roth IRA would have a gross amount, but not a taxable amount. A 401(k) would be the same as a traditional IRA.
You would have to go ask the plan administrator. If the amount was on the 1099-R Line 2a, you should have reported it as income on your 1040. Was any amount reported in 2a? Is this where the IRS has recalculated your return?
If there was no amount reported on 2a and this was a Traditional IRA/SEP, then the amount was probably taxable and it sounds like the plan administrator made an error. The IRS receive the form, matched it to your 1040, and adjusted income as (it sounds like) you did not report this income.
-Perla Diaz, Blue Pearl Bookkeeping & Tax
I just started a new LLC and need to file my quarterly
Hi, I just started a new LLC and need to file my quarterly taxes….today. I made no income in the last quarter though, and I haven’t worked in the last 8 years because I was a stay at home mom. I have no idea what to do to fill out this form and estimate my quarterly payment. A books program I’m using says my estimate is $0, but I want to make sure. Can you help?
Answer:
Your estimated taxes are meant to cover the quarter that just ended, so if you had no income in the last quarter, the amount that you would pay is $0.
Individuals, including sole proprietors, partners, and S corporation shareholders, generally have to make estimated tax payments if they expect to owe tax of $1,000 or more when their return is filed.
To figure your estimated tax, you must figure your expected adjusted gross income, taxable income, taxes, deductions, and credits. If you have no income then $0 for that quarter is fine.
For this first year, the quarters may be different. If you estimate your earnings too high, simply complete another Form 1040-ES worksheet to refigure your estimated tax for the next quarter. If you estimated your earnings too low, again complete another Form 1040-ES worksheet to recalculate your estimated tax for the next quarter. You want to estimate your income as accurately as you can to avoid penalties.
Also, you shouldn’t need to mail anything. You use the next voucher for the next payment due date if in this quarter you need to pay something.
Just keep Voucher 2 with $0 on it so you will remember when you file your return.
-Perla Diaz, Blue Pearl Bookkeeping & Tax
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