dating game oniell nebraska - C corp liquidating dividend

S corporation shareholders are taxed on income whether or not the earnings are distributed.When distributions are actually made from an S corporation, they are assumed to come first from income that has already been taxed, but has remained undistributed as retained earnings.

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Distributions in excess of accumulated E&P are treated as a nontaxable return of capital to the extent of the shareholder’s stock basis.

Distributions beyond that are treated as a sale of the shareholder’s stock, generally taxed as a long-term capital gain, depending on the holding period.

The remaining $20,000 is treated as sale of the shareholder’s stock as a capital gain to the shareholder.

Consider the same example; however the corporation also has $10,000 of C Corporation E&P.

Each category of distribution is taxed differently.

The first and most important question is whether a distribution is really a dividend, and E&P is the measuring stick used in this scenario.Then, a second tax is paid when those same earnings are distributed as dividends to the shareholders.This system of double taxation is precisely the reason why many people choose S corporation status, as S Corporations pay no tax on their own at the corporate level.The difference between S corporations with C Corporation E&P (and S corporations without C Corporation E&P), is reflected when there are distributions in excess of undistributed previously taxed income.An S corporation with C Corporation E&P is required to maintain an account called the accumulated adjustments account (AAA).If the corporation has no C corporation E&P, the first ,000 of the distribution is tax-free.

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