The corporation currently has 5 shareholders (5 natural persons), each owns equally 20% of the company’s common stock. Currently, the company runs as a small business, using cash method of accounting. It does not sell products, only provides appliance repair services. However, if may start selling appliance repair tools at a later date if business becomes successful. The shareholders also think about seeking additional funding capital from external sources in the future.
The shareholders of the company are not knowledgeable about tax laws; that’s why they have retained your service. Nevertheless, they have heard from their friends, about something called S-Corporation. They called you yesterday, wanting to know more about S-Corporation and whether they should change their company to an S-Corporation. As the Tax Advisor, what will you advise them?
Write a short memo (no more than 3 pages, but not less than 2 pages, no words limit) to the shareholders of Excellent Appliance Repair, Inc. –
1) Explain all the advantageous features of an S-Corporation that you know of. Compare them to C-Corporation’s features (if applicable).
2) Using the facts about the company (read the scenario above), explain the possible restrictions of an S-Corporation.
3) Explain how to make EAR an S-Corporation, i.e. what kind of tax filings to become an S-Corporation.
4) Explain how EAR will file annual tax income returns as an S-Corporation. Compare to the annual filing of tax income returns as a C-Corporation.
5) If EAR becomes an S-Corporation, how their shareholders will report their shares of business income or business loss from EAR.
The work submitted for grading must show:
1) Format: Issue; Facts; Laws and Analysis, Explanation and Conclusion,
2) Format: Single-spaced for regular text; double-spaced between paragraphs, 12 points Times News Roman font, margin of 1 inch each side, 2 to 3 pages length (no more than 3 pages)
3) Format: If any work you cite that is not your own wording or writing, there must be citations and references in APA format. This is strictly enforced. Work with no citation could risk plagiarism. The sources referred to must be in the Reference list with Internet links for me to verify
4) Content: Besides the above-listed content, I also look for the following when grading your work:
a) Listing or Citing Relevant Tax Codes, Regulations or Rulings, etc.
b) Listing of any applicable Tax Elections