Taxation Case Study

Change in structure of partnership/corporation and its tax implications.

INTRODUCTION

ABC LLC is a Real-estate firm established by Mr. A and Mr. B in the year 2019. As per the records, Mr. A and Mr. B hold equal partnership in the firm. In 2020, Mr. A and Mr. B formed a new S-Corporation - ‘XYZ Investments Inc.’ Both had committed for an equal partnership in the new venture as well & hence decided to share profit and loss equally. In the year 2021, Mr. B has withdrawn his interest from both the companies. The challenge was to help the firms ABC LLC & XYZ Investments Inc save taxes and come up with a beneficial solution for the existing party/stockholder.

CHALLENGES

1. What would be the status of partnership company in 2022?

2. What would be the status of S-Corporation in 2022?

PROPOSED SOLUTIONS

1. For ABC Real Estate LLC:

It may introduce a new partner to the company and continue filing 1065 – Income tax returns for partnership income.

In case of no new partner, Mr. A shall report income and expenses from the ABC Real Estate LLC on Schedule E of his individual income tax returns.

2. For XYZ Investments Inc:

As it is an S-Corporation, Mr. A can file Form 1120S – Income Tax Returns for S-Corporation as 100% shareholder.

RESULTS AND BENEFITS

By implementing the proposed solutions, Mr. A can minimize his tax liabilities with the following outcomes:

By reporting income and expenses from ABC Real Estate LLC, Mr. A can present his profit and loss before IRS and respective state authorities.

By filing, Form 1120S for XYZ Investments Inc, as a 100% shareholder, Mr. A can enjoy benefits of S-Corporation on income.

CONCLUSION

It is vital to know reporting requirements of any entity’s income and expenses on withdrawal of any partner/shareholder.

By performing a deep case study, abiding by the applicable corporate tax laws, and implementing cost-saving solutions, AccountingAccumen helped Mr. A file taxes within the tax law limits.

By opting for our most beneficial and appropriate filing status solutions, Mr. A could successfully reduce his tax liability.

Taxation Case Study

CHALLENGES

PROPOSED SOLUTIONS

RESULTS AND BENEFITS

CONCLUSION

Get Financial Help that Drives your Business to the Next Level

Industries

Software Expertise

Services

Success Stories

Who We Are

Quick Links