Corporate Taxation

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QUESTION
Part 1.
 
There are certain basic components of corporate capital structure, and there are tax consequences related to this capital structure. For instance, transferring property between a corporation and its shareholders can have several tax implications, and transferring property back and forth between the corporation and non-shareholders can have even further tax implications.
 
 
 
Write at least 200 words answering the following questions:
 

Explain the differences in tax treatment for transfers of property to a corporation from shareholders and non-shareholders. Would any of these transactions be considered unethical? Explain.

 

What are the major tax advantages of having debt in the capital structure?

 

Corporations with excessive amounts of retained earnings may incur a tax for failure to distribute them. Why would an organization accumulate excessive amounts of retained earnings? What arguments could they use to counter the position of the IRS?

 
Part 2.
 
In a Word document, complete the following exercises on the tax consequences of incorporating a business:
 

A sole proprietorship has $50,000 of inventory and $100,000 worth of assets. Should the sole proprietor decide to incorporate, what are the tax consequences? How will the assets be treated in the transfer to the newly incorporated entity? How does this transfer affect both the personal and corporate tax bases of the assets? Are there benefits to the organization for this transfer of assets?

 

A self-employed individual with current net income of $100,000 may want to incorporate for tax purposes. What are the tax effects if this sole proprietor decides to incorporate? Compute the tax for an individual, assuming that the person is single with no itemized deductions and that the net income is the same for both the self-employed individual and the corporation. How is the self-employment tax treated if the individual incorporates? How does double taxation affect this individual? Compute the tax for both of the following scenarios:

The $100,000 was received as W2 earnings from the corporation with no withholdings.

The $100,000 was received as dividends.

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