Sexyweb cam chat - Liquidating distributions c corporation

Instead of paying a dividend (in the case of a C corporation) or a distribution (for an S corporation) in cash, you may be tempted to distribute property (car, computer, etc.) out of the corporation. If an S corporation distributes appreciated property to its shareholders, the difference between the fair market value and the property's basis will result in a gain that will be passed through to the shareholders. (an S corporation) owns a truck that was purchased for ,000.

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The gain is passed through to the shareholder and has to be reported on his tax return.

This can get messier if there's more than one shareholder.

In that case the gain is income to the other shareholders as well, based on share ownership.

Of course, if the corporation should the asset and distributed the cash to the shareholder, the result would be the same.

The result would be similar if Madison is a regular corporation, except that the tax would have to be paid at the corporate level.

However, in this case there would be a second tax at the shareholder level.Thus, the shareholder would report the ,500 dividend (the fair market value) on his personal return and pay tax a second time.Not only may there be a double tax, the combined tax may be so much that you may create cash flow problems paying the tax.There's another problem, common to both regular and S corporations. Even with an appraisal, the IRS could argue the property's fair market value was higher. Assume Madison distributes two assets at the same time--a truck that had a fair market value of ,000 more than its tax basis (cost less depreciation), and a car with a fair market value of ,000 less than its tax basis. Thus, Madison would have a ,000 taxable gain on the truck and a ,000 nondeductible loss on the car.Winning such an argument can be difficult and costly. If you want to get rid of loss property, the best approach is to have the corporation sell the property, then distribute the cash.The problem is considerably diminished if the asset is easily valued. That way the corporation (or the shareholders in an S corporation) can get the tax benefit of the loss.

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