Year of Award
Master of Business Administration (MBA)
College of Business & Professional Studies
corporation, revenue, earnings, distribution
The S corporation offers the small business owner several income taxation and operational benefits. The current income tax rules create an environment where, with proper planning, the expected tax results can be realized. The shareholders basis in the S corporation stock is a critical element in determining how the various income tax attributes flow through to the shareholder. The shareholder basis in the S corporation includes the cost to the shareholder increased by the taxable income, then reduced by the losses and distributions from the corporation. In the determination of losses, shareholder loans are included with the stock basis to determine the allowable deductible loss for the shareholder. Distributions from S corporations can be tax free, taxable or treated as a gain on sale. The treatment is a function of the shareholder's basis in the stock and the source of the funds. Taxable dividends generally arise when the S Corporation has previously been a C corporation and has accumulated earning and profits. The statutory framework for distributions is relatively straight forward with the timing of distributions being a critical issue. An understanding of the S corporation basis and distribution rules combined with good planning can yield very favorable tax consequences to the shareholders of the S corporation.
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Wright, Robert E., "Planning and Operational Techniques Used in Conjunction with Basis and Distribution Issues for S Corporation Shareholders" (1994). Theses, Dissertations, and Capstone Projects. 197.
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