S Corporations And Cooperatives

1467 words - 6 pages

Intro Sample...



The S Corporation was created in 1958. This was an initiative for investors, giving them access to the corporate form of doing business without incurring two levels of tax. The popularity, however, was not always there. As tax codes changed, so did the interest in them. The S Corporation has gained most of its popularity in 1986, when the rules for C Corporations became less attractive to shareholders. Not every business can qualify for this status, they must first meet the following requirements.



The business must first qualify as a ?small business corporation?. This can be further defined as a domestic corporation that has 75 or fewer eligible shareholders, is an eligible corporation and has only one... View More »

Body Sample...


Any items increasing basis flow through to the owner before items reducing basis.

S corporation distributions often include accumulated income previously taxed to the shareholder, which is included in his or her basis thus, distributions are typically considered nontaxable to the extent of the shareholder's basis. For businesses that have always been S corporations, this always holds true. When distributions exceed a shareholder's basis, the recognition of capital gain is generally avoided by having the shareholder increase his or her stock basis before the year ends. This is generally accomplished by having the shareholder either contribute capital or lend money to the S corporation. Realized gains, but not losses, are recognized on the assets S corporations distribute shareholders. These gains are passed through to shareholders.



Those shareholders who own more than 2 percent are treated like partners. Fringe benefits requiring employee status are considered compensation. These benefits are deductible by the corporation and are subject only to income taxes. They are not subject to FICA or FUTA, unlike a partnership. While the more than 2 percent shareholder is required to include the benefit in income, he or she is also entitled to treat such benefit as if he or she paid for it. Thus, in the case of medical insurance premiums paid by the S corporation, the shareholder is entitled to a partial deduction of his or her cost as a deduction above the line. In addition, the shareholder may claim the balance as an itemized deduction subject to a 7.5 percent ...

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