PPC's Tax Planning Guide—S Corporations explains the tax consequences of electing and maintaining S status, operating the S corporation, and terminating the S election. It covers other tax issues, too, such as reorganizing the corporation, maintaining a QSub subsidiary, redeeming S stock, or liquidating the S corporation. The Guide also addresses owner issues, such as maximizing the shareholder's basis in stock and debt, making distributions in the most tax-efficient manner, and estate planning for S shareholders. In addition, the Guide explains recently proposed debt basis regulations that would (if finalized in their current form) eliminate the long-standing economic outlay requirement and covers the potential opportunities for obtaining debt basis.
Since many of the issues encountered when responding to client questions or planning transactions go beyond the S corporation provisions of the Code (Subchapter S), the Guide addresses operational issues too, such as electing and maintaining a fiscal tax year, using the cash method of accounting, and passing through the Section 179 deduction, among others. For example, for S corporations that are planning on buying machinery or other personal property in the near future, the Guide discusses the opportunity to take advantage of the inflation-adjusted $500,000 Section 179 deduction limit for tax years beginning in 2013, as well as 50% bonus depreciation. The Guide also provides an entire chapter on fringe benefits, deferred compensation plans, and qualified retirement plans, with an emphasis on the special rules applicable to S corporations and 2% shareholders.
In particular for 2013, the many new provisions of American Taxpayer Relief Act of 2012 and the Affordable Care Act of 2010 that became effective in 2013 have revamped the tax planning landscape.
The maximum ordinary income tax rate for individuals increased from 35% to 39.6% on January 1, 2013. On that same date, the maximum tax rate on long-term capital gains and qualifying dividends increased from 15% to 20%. Beginning in 2013, the employee portion of the Medicare tax increased by 0.9% on wages in excess of $200,000 ($250,000 for married couples filing jointly and $125,000 for married filing separately), and individuals with modified adjusted gross income over $200,000 ($250,000 for married filing jointly or a surviving spouse and $125,000 for married filing separately) must pay a 3.8% Medicare tax on their net investment income.
The 2013 edition includes discussion and new tables that compare the 2012 and 2013 tax rates and list the provisions of the 2012 American Taxpayer Relief Act and the effective dates. You can use these practice aids, along with the Quick Access Federal and Business Data Sheets, and the sample client letter summarizing the Act’s changes to engage your clients in proactive tax planning. Additional discussion, examples, and planning pointers have been included to illustrate how the employee portion of the 0.9% Medicare tax rate increase and the new 3.8% net investment income tax affect S corporation shareholders and S corporation planning strategies.
In an important break specifically provided for S corporations, the 2012 Act shortens the built-in gains recognition period to five years for tax years beginning 2012 and 2013. Updated discussion and planning strategies explore the impact of this reduction of the built-in gains recognition period, and the unique opportunities it presents when a built-in gain asset is disposed of in an installment sale are illustrated. A revised built-in gain worksheet is also provided.
The 2012 Act also permanently extended the estate and gift tax provision of both EGTRRA and the 2010 Tax Relief Act. As a result, the applicable exclusion amount for 2013 is $5.12 million (adjusted for inflation) and the maximum tax rate is 40%. The Act also permanently extended the provisions allowing portability of a decedent’s unused exclusion amount to a surviving spouse. The chapter on estate planning for S corporation shareholders has been thoroughly revised for these changes.
The chapters are written and updated by experienced practitioners, with the concepts illustrated by hundreds of real-life examples. The Guide also includes checklists, worksheets, elections, and other practice aids to promote an efficient and knowledgeable approach to handling transactions that clients are contemplating or have completed.
And to help you and your staff transition from tax compliance to tax planning, the Guide includes a tax planning roadmap. By reviewing a client's (or potential client's) Form 1120S or Schedule K-1, you can identify potential planning strategies that can be used as a starting point for further discussions with the client.
Tax planning can solidify your relationship with your clients and save them thousands of dollars. Now in its 27th edition, PPC's Tax Planning Guide—S Corporations is the one resource you need to efficiently and effectively provide tax planning services to your S corporation clients and their shareholders throughout the year.