Pass-Through Taxation

Pass-through taxation is an IRS concept related to partnerships, S-Corporations, trusts and a few other special types of business operations.  Pass-through taxation is reported via Form K-1 and this document allocates the earnings, special forms of income and deductions to the respective owners based on some preset formula as defined in the legal documents of the entity.   Pass-through taxation is customarily less expensive to the taxpayer than traditional business taxation.

Bookkeeping – Charitable Giving (Lesson 64)

Charitable Giving

Many small business owners are actively involved in the community and thus donate time and money to their favorite cause. In almost every case the owner believes the donation is a business deduction. It is NOT a business deduction for tax purposes except under the C-Corporation status; however, the business is still writing the check. Therefore the bookkeeper must still track the deduction and identify the donation properly so the gift is deductible on the owner’s personal tax return.

Owner Compensation in an S-Corporation

Owner Compensation

One of the tax attributes of an S-Corporation over other forms of tax entities is the ability to reduce the overall tax obligation. Naturally the lower the overall tax requirement the more profit generated for the owner(s). The S-Corporation allows an owner to reduce their tax responsibility via the compensation package assigned to the owner.

Real Estate Investment Trusts – REITs

REITs

Real Estate Investment Trusts are corporations, trusts or associations that act as agencies in real estate and associated mortgages. This is a specialized tax segment and it requires recognition by the Internal Revenue Service to operate as a Real Estate Investment Trust (REIT).

At-Risk Rules – An Elementary Understanding

At-Risk Rules

Code Section 465 of the Internal Revenue Code defines ‘At-Risk’ as the financial value the taxpayer has in jeopardy related to the business activity the taxpayer is invested in as some form of an owner. Effectively, the taxpayer may only take losses on his tax return contingent on the loss being directly tied to invested dollars with some form of tax basis.

Why You Should Incorporate Your Business

Incorporate

As a small business grows, there comes a time when the owner(s) should consider incorporating the business. A corporation is a separate entity recognized by the state of domicile for the business. It is as if a new life is created. The state acknowledges the existence of this entity and therefore grants limited legal rights similar to those rights possessed by the citizens of that state. 

What is a K-1?

A K-1 is a reporting tool to the Internal Revenue Service. It is used by Partnerships, S-Corporations and Trusts to report the taxpayer’s share of income, deductions, and credits. A K-1 is similar to Form W-2 or 1099 in that the information provided informs the taxpayer of what has been reported to the Internal Revenue Service.

The Basic Principles of a Partnership

A partnership is a form of a business entity that provides many more advantages than any other form of business entity. There are several basic principles of a partnership that once understood, the reader can use to his advantage in the small business world. Below are descriptions and an explanations of the basic principles of a partnership and the corresponding legal impact.

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