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 B has withdrawn his interest from both the companies.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.

Accounting Accumen

S-Corporation Taxation Case Study

Taxation Case Study

CHALLENGES

PROPOSED SOLUTIONS

RESULTS AND BENEFITS

CONCLUSION

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