Substantiation helps avoid accumulated earnings tax
Article Abstract:
The accumulated earnings tax is a fine based on the fraction of earnings in the current year that cannot be justified as being retained for acceptable business purposes. Presently, the tax rate is 39.6% although $250,000 of accumulated earnings can be sheltered from the tax through a safe harbor. Sec. 532(a) holds that the accumulated earnings tax is applicable to every corporation that was created or availed of to avoid income tax by allowing the accumulation of earnings and profit instead of distributing them. Sec. 532(b) exempts personal holding companies, foreign personal holding companies, tax-exempt corporations and passive investment companies. Sec. 532(c) provides that determination of accumulated earnings tax does not place importance on the number of shareholders. Careful and ongoing planning of earnings accumulation should be conducted to avoid this tax.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1995
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Planning pays for stock redemptions through related corporations
Article Abstract:
Section 304 stock redemptions can be used to collect money from related corporations supporting minimal additional tax. However, the use of Section 304 redemptions should be considered very carefully because it features a number of disadvantages that may produce counter-intuitive results. It also does not correlate with redemptions within a domestic affiliated group. Moreover, Section 304 integrates attribution guidelines associated with the establishment of constructive ownership during the process of determining stock ownership for measuring control. The constructive ownership rules support reasons for blood relationships and entity associations such as spouses, children, parents and grandchildren.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1998
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When is a 'hobby' a busiiness for tax purposes?
Article Abstract:
The author discusses hobby loss rules under IRC section 183(a) determining allowable tax deductions and the rules determining whether an activity is a hobby or trade or business.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1997
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