Software Club 210: Light Red/Club_Software_210_Light_Red_Micro_Star_1997.iso/sba/f302.sbe

Text File | 1997-01-01 | 51KB | 1,270 lines

@Q01

             ┌───────────────────────────────────────────┐
             │  SHOULD YOU INCORPORATE?  ELECT TO BE AN  │
             │       S CORPORATION?  OR BE AN LLC?       │
             └───────────────────────────────────────────┘

  Please enter the name of your business (or your proposed
  business):

@TX
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@Q02

  QUESTION:  Is this a business that you have already started
             (or acquired)?

@YN
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@Q03

  QUESTION:  If you were to sell your business (or the stock
             of your incorporated business) today for its fair
             value, how much of a taxable gain or a loss would
             you have on the sale?  (Make your best estimate.)

              .  1 - A gain of over $1 million
              .  2 - A gain of $500,000 to $1 million
              .  3 - A gain of $100,000 to $500,000
              .  4 - A gain of $50,000 to $100,000
              .  5 - A gain of about $0 to $50,000
              .  6 - Breakeven, more or less
              .  7 - A loss of less than $50,000
              .  8 - A loss of $50,000 to $150,000
              .  9 - A loss in excess of $150,000

@MC\09
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@Q04

  QUESTION:  Is the business in question already incorporated?

@YN
01\Q05
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@Q05


  QUESTION:  Is the corporation an "S corporation"?

@YN
01\Q06
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@Q22

  NET OPERATING LOSS OR TAX CREDIT CARRYOVERS:  A C corporation
  that incurs net operating losses or has more tax credits than
  it can use in the current tax year can generally carry the
  losses or unused tax credits back to any of its 3 preceding
  tax years, to obtain refunds of taxes paid in those years.
  However, for a new corporation, or one that has no profitable
  prior years to carry losses or credits back to,  there is no
  other choice but to carry the net operating losses (NOL's) or
  credits over to future years, in the hope that it will
  eventually have taxable income against which a NOL or credit
  carryovers can be offset, reducing taxes in those future
  years.  (Most NOL's or unused tax credits can be carried
  forward for up to 15 tax years after the year incurred.)

  QUESTION:  Does your C corporation have substantial unused
             net operating loss or tax credit carryovers at
             present?

@YN
01\Q06
02\Q06

@Q06

  TAX LOSSES: Start up losses incurred by a regular ("C")
  corporation cannot be passed through to shareholders, but
  must be carried forward until (if ever) they can be used to
  offset future taxable income of the corporation....And a
  more-than-50% change in stock ownership of the corporation
  can severely reduce the corporation's right to use a large
  part of any such tax loss carryovers.

  S corporation elections can be very useful in the early stage
  of a business if it is losing money, due to the fact that the
  losses an S corporation incurs can be "passed through" to its
  shareholders and, in many cases, deducted on their individual
  tax returns. An S corporation can also pass through certain
  tax credits, such as various jobs credit and certain other
  business credits, which might not be utilized currently in a
  C corporation that has little or no net taxable income.

  QUESTION:   Is your corporation generating tax losses (Or do
         you expect it to?) in amounts you consider substantial?
@YN
01\Q21
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@Q21

  The usability of a corporation's tax losses, even if it is
  an S corporation, depends upon whether those losses (or tax
  credits) can be passed through and utilized by stockholders.
  Thus, such losses may not flow through to your individual
  tax return if, for instance, they are "passive activity"
  losses; you or the S corporation are not considered "at-risk"
  with respect to the losses; or you lack sufficient "tax
  basis" in your S corporation stock to utilize any further
  losses.  Or, even if the losses or credits flow through to
  your individual return, you may not be able to use them
  currently, due to insufficient taxable income of your own in
  the current year (or preceding 3 years) against which the
  losses can be applied, or else credits may not be usable by
  you due to such factors as the alternative minimum tax (AMT).

  QUESTION:  To the best of your knowledge (only your tax
             adviser can tell you for sure about this one),
             do you think you could utilize your corporation's
             tax losses if it is an S corporation?
@YN
01\Q12
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@Q07

  QUESTION:  How much annual PRE-TAX profit do you expect the
             corporation to earn each year in the near future
             (assuming you limit owner salaries to no more
             than $100,000 a year per owner, as a maximum) ?

             .  1 - None:  We expect to have losses, or very
                    minimal net profits, under $10,000 (as
                    defined above)
             .  2 - Between $10,000 and $100,000 profit (as
                    defined above)
             .  3 - Between $100,000 and $335,000 profit (as
                    defined above)
             .  4 - Over $335,000 pre-tax profit (as defined
                    above)

@MC\04
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@Q10

  TAX LOSSES:  Start-up or other losses or tax credits earned
  by an unincorporated business (sole proprietorship, LLC, or a
  partnership) can generally be passed through to the owner or
  owners, to be claimed on their individual income tax returns.
  (Unless the deductions or credits are suspended due to the
  at-risk or passive activity loss rules, or on account of
  insufficient tax basis.)  Such losses or credits cannot be
  used if the legal form of the business is a C corporation,
  but must instead be carried over to another year in which
  the corporation has taxable income.

  QUESTION:  Will your business generate tax losses or tax
             credits in the next tax year (or two), in
             amounts that you consider substantial?

@YN
01\Q12
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@Q11

  QUESTION:  How much pre-tax profit (per owner, if more
             than one owner) do you expect the business to
             earn, on average, for the next few years
             (assuming the business is not incorporated)?

             .  1 - None:  We expect to have losses, or not
                    over $50,000 profit (as defined above)
             .  2 - Between $50,000 and $100,000 profit (as
                    defined above)
             .  3 - Between $100,000 and $335,000 profit (as
                    defined above)
             .  4 - Over $335,000 pre-tax profit (as defined
                    above)

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@Q12

  Medical insurance, medical reimbursement plan expenses, and
  other "fringe benefits" such as disability insurance and
  group-term life insurance are generally not deductible
  expenses for owners of unincorporated business or shareholders
  (owning 2% of the stock or more) of S corporations.  By
  contrast, a C corporation that pays for such benefits for
  its employees, including owner-employees, is generally able
  to deduct such expenses, with the value of such coverage
  generally NOT being taxable to the employees (except for
  the value of group-term life insurance coverage in excess
  of $50,000 for a given employee).

  QUESTION:  Do you (or does your business) plan to purchase
             medical coverage, disability insurance or group
             term life insurance for you or the other owners
             of the business?

@YN
01\Q20
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@Q20

  DIVIDENDS-RECEIVED DEDUCTION.  A C corporation may sometimes
  be used advantageously to hold dividend-paying stocks, since
  the federal tax law allows the corporation to avoid paying
  tax on 70% of the dividends it receives (80% if your company
  owns 20% or more of the stock of company paying a dividend).
  This deduction is NOT allowed to an S corporation