In Phillips v. Commissioner, No. 17-14439 (11th Cir. 2018), the court concluded that a judgment against the owner of an S corporation for guaranteeing the business debts does not increase the owners tax basis in the S corporation. This is one area where a little advance planning can go a long way to avoiding a tax…
Category: S Corporation Tax
S Corporation Tax
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Court Says Rent Income from S Corp Not Subject to Self-Employment Taxes
In Martin v. Commissioner, 149 T.C. 12 (2017), the court concluded that S corporation shareholders can avoid self-employment taxes by holding their farming operations in their S corporation. While the court case considered farming operations, its holding is not limited to farming operations. The case provides authority shareholders may cite in support of similar but…
IRS Says Personal Expenses Paid by S Corp. Not Loan Repayments
If a Subchapter S corporation pays its shareholders personal expenses, can the payments be for the repayment of loans not subject to employment instead of wages subject to employment taxes? This is a common issue that has to be addressed when preparing S corporation tax returns. The IRS addressed this in AOD 2017-04 disagreeing with…
S Corporation Owner Taxed on Earnings Not Distributed
Taxpayers who own an interest in an S corporation are often not familiar with the tax rules for S corporations. They are often surprised to learn that they have to pay taxes on the business profits even if they do not receive distributions from the business. The court recently addressed this fundamental concept in Dalton…
Subchapter S Corporation Losses Limited by Tax Basis
One of the benefits of Subchapter S corporations is the ability to have losses flow through from the business’ tax return to the individual shareholder’s tax return. These flow-through losses are limited by the shareholder’s tax basis in the S corporation stock. The court recently addressed this limitation in Tinsley v. Commissioner, T.C. Summary Opinion…
Deducting Back Taxes in Current Year for Defunct Business
Can an S corporation shareholder for a defunct business pay unpaid taxes in the current year, and have the defunct business deduct the payment in the current year? The court addresses this in Brown v. Commissioner, T.C. Memo. 2017-18. Most business owners may miss this deduction given that the business is no longer operating. Facts &…
S Corporation Owner Subject to Self-Employment Tax
Taxpayers often establish Subchapter S corporations to avoid Social Security and Medicare taxes on a portion of their earnings. This is a very common arrangement. The Fleischer v. Commissioner, T.C. Memo. 2016-238, court case provides an example of how the Subchapter S corporation must be structured to avoid these taxes. Facts & Procedural History In Fleisher, the…
Paying a Fee to an S Corp to Avoid Self-Employment Taxes
Sole proprietors and partners who provide services to their partnership business have to pay self-employment taxes on the income they earn from the business. Self-employment taxes include Social Security and Medicare taxes. The owner of the sole proprietorship is then able to deduct one-half of this amount in determining his federal income tax liability. Subchapter…
Valuation Challenges and Pitfalls in Tax Cases
Valuing property for tax purposes is complex and can be a critical issue as it can result in significantly higher or lower taxes. The Garwood v. Commissioner, T.C. Memo. 2004-195, case offers a fascinating example of the challenges and pitfalls involved in valuation, particularly in the context of tax court cases. This case involved the…