Memorandum-to-the-file
Date: December 5, 2015
From: Nyatiah Nickens NN
Re: Tax Consequences of Incorporation Facts: The accompanying facts are known and applicable to Stacey Small situation. Stacey has a small salon that she has kept running for a couple of years as a sole proprietorship. Stacey utilizes the cash method of accounting and the calendar year as its tax year. Stacey is looking for extra capital for development and knows two individuals who may be keen on investing. One would like to practice on hairdressing in the salon. The other would just invest. Her business resources/assets include a building, equipment, accounts receivable and cash. Liabilities include a mortgage on the building and a few accounts payable, which are deductible when paid. …show more content…
The S-corporation is subject to single-level taxation, much like a partnership. Stacey’s earnings would be accounted for at the corporate level, but is taxed only at the shareholder level. The C-corporation is subject to double taxation. Stacey’s earnings would be taxed first at the corporate level when earned and then again at the shareholder level when it’s distributed as dividends.
Applicable Law: US Tax Code Section 11- A tax is hereby imposed for each taxable year on the taxable income of every corporation, states “The amount of the tax imposed by subsection (a) shall be the sum of—
(A) 15 percent of so much of the taxable income as does not exceed $50,000,
(B) 25 percent of so much of the taxable income as exceeds $50,000 but does not exceed $75,000,
(C) 34 percent of so much of the taxable income as exceeds $75,000 but does not exceed $10,000,000,
Date: December 5, 2015
From: Nyatiah Nickens NN
Re: Tax Consequences of Incorporation Facts: The accompanying facts are known and applicable to Stacey Small situation. Stacey has a small salon that she has kept running for a couple of years as a sole proprietorship. Stacey utilizes the cash method of accounting and the calendar year as its tax year. Stacey is looking for extra capital for development and knows two individuals who may be keen on investing. One would like to practice on hairdressing in the salon. The other would just invest. Her business resources/assets include a building, equipment, accounts receivable and cash. Liabilities include a mortgage on the building and a few accounts payable, which are deductible when paid. …show more content…
The S-corporation is subject to single-level taxation, much like a partnership. Stacey’s earnings would be accounted for at the corporate level, but is taxed only at the shareholder level. The C-corporation is subject to double taxation. Stacey’s earnings would be taxed first at the corporate level when earned and then again at the shareholder level when it’s distributed as dividends.
Applicable Law: US Tax Code Section 11- A tax is hereby imposed for each taxable year on the taxable income of every corporation, states “The amount of the tax imposed by subsection (a) shall be the sum of—
(A) 15 percent of so much of the taxable income as does not exceed $50,000,
(B) 25 percent of so much of the taxable income as exceeds $50,000 but does not exceed $75,000,
(C) 34 percent of so much of the taxable income as exceeds $75,000 but does not exceed $10,000,000,