Ccorp Scorp Essay

1112 Words Mar 1st, 2013 5 Pages
Our client, Individual #1, is currently earning $350k in gross receipts and $175k in gross profit, respectively, from his IT consulting business. In discussions with the client, we learned he wants to transition his sole proprietorship/LLC into either an S-Corp or C-Corp. I propose his reorganization as an S-Corp as although it limits his potential for equity investment, it provides both a liability and tax shield.

Corporate Formation 1) Section 351: Since Individual will be in control (80%+ ownership) of future corporation, he will not incur a taxable event a. Liability exceptions – tax avoidance or transfer was not for a bona fide business purpose b. If liabilities are in excess of Individual’s tax basis

As the
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Scenario #1
Not accounting for the beginning benefit of less employment taxes, election of S-Corp structure will not have an effect on his taxes paid – as the flow through income will be taxed at personal rates. With regard to employment taxes, recall, since the $175,000 will not incur the self-employment rate of 13.3% (10.4% Social Security, 2.9%

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