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Abandon All Hope? If a Partnership, Maybe

By:  Amanda Wilson

Several years ago, many taxpayers faced with underwater partnerships would abandon their partnership interests, thereby triggering an ordinary loss.  This ordinary loss was often preferred over the capital loss that would be triggered if the taxpayer’s sold their partnership interests or liquidated the partnership.  Capital losses are less advantageous, as they can generally only be used to offset capital gains.  By contrast, ordinary losses can offset ordinary income, providing a much bigger tax benefit. read more

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Shortening the Built-in Gains Period?

By:  Amanda Wilson

An S corporation is a popular tax vehicle for family owned businesses, as it allows for a single layer of tax instead of the double layer of tax imposed on regular corporations.  Instead of the S corporation paying tax, the taxable income of the S corporation passes through to the shareholders and is reported on the shareholders’ personal tax returns.  The S corporation can generally then distribute the accompanying profits to the shareholders free of federal tax. read more

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Common Traps When Selling Partnerships

By:  Amanda Wilson

Because of the flexibility and tax benefits that tax partnerships provide, many small businesses and family partnerships use tax partnerships. For tax purposes, a partnership can be in the form of a general partnership, limited partnership, limited liability company or limited liability limited partnership.  While these forms offer great tax advantages, they can also result in unexpected surprises and traps for the unwary when a partnership interest is bought or sold. read more

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Can or Should an LLC be a Shareholder of an S Corporation?

By: Amanda Wilson

Many private companies utilize S corporations in their ownership structure, as they provide beneficial tax treatment. In order to qualify as an S corporation, the corporation can have only certain types of shareholders. Specifically, a partnership cannot be a shareholder. Yesterday, someone asked me whether a single member LLC could be a shareholder. The answer should be yes, as the LLC is treated as though it does not exist for tax purposes. Private guidance indicates that the IRS agrees with this answer. read more