Tax Considerations and Related FAQs

If I convert my LLC from one state to, say, California, do I need a new Tax ID number for the LLC in California?

Since the LLC is just moving from one state to another, and not changing its structure or tax status, a new Tax ID number shouldn’t be required. The LLC would need a new Tax ID number, for example, if you terminate the LLC in one state and then start a new one in another state [...]

August 6th, 2020|0 Comments

What’s an assignment?

An assignment is a document used to transfer assets from one entity or owner to another. Click here to see if you need one.

June 15th, 2015|0 Comments

What’s a capital contribution?

In its most basic terms, this is the money (or sometimes the assets, like equipment) you put into your business. It differs from a loan in that it doesn’t accrue interest payable to you. If you put money into your corporation or LLC (or partnership), then the return of that money to you as you start to distribute money to you, is non-taxable.

June 15th, 2015|0 Comments

Do I have to make a capital contribution?

No, a capital contribution isn't necessary. But typically you would, and should, make one. You would because there’s almost no way to start a business with zero invested in it. And you should because if your corporation is “under-capitalized”, then you could be exposing yourself and fellow shareholders or members to personal liability, making the formation of the entity a waste of time and money. And it takes more than $1.00 to protect yourself (but nice try).

June 15th, 2015|0 Comments

Can any corporation be an S Corporation?

Any corporation can be an S Corporation, unless it doesn’t meet certain criteria. For example, an S Corporation cannot be owned by another corporation, with certain very narrow exceptions. And sometimes you don’t want your corporation to be an S Corporation, for example, when you are seeking VC investments.

July 12th, 2015|0 Comments

When is an S Corp election due?

For a corporation to be an S Corporation, the paperwork to make that effective is due no more than two months and 15 days after the beginning of the tax year the election is to take effect (yes, I copied that from the IRS instructions). If you’re really ahead of the game, then anytime during a tax year preceding the year you want it to be in effect. For new corporations, the tax year typically begins on a day other than January 1, unless you formed on that date. So, for example, if your corporation was formed on July 8, then the S Corp election would be due 15 days after September 7, or September 22.

August 10th, 2015|0 Comments

Can I cause my corporation to be an S Corp at the end of the year, after I see how my year has been?

You wish. But no. Congress treats this election as a go-forward business decision, not a look-back election. The good news is that it’s easy to revoke, or even “bust”, the election. But be careful about switching back and forth – as in, things don’t work that way.

August 10th, 2015|0 Comments

I’m causing my corporation to elect to be taxed as an S Corporation. Does my spouse have to sign?

You’re going to get different answers, depending on the advisor you ask, and the state you’re in. Generally, though, best practice is yes, and sometimes required. PS - If you're keeping this a secret from your spouse, then an S Election is not your biggest problem.

August 10th, 2015|0 Comments

Do I need all of the shareholders’ consent for the S Corp election?

Yes. It’s really that simple. Here’s a link to the IRS page that’s chock full of info. PS - Spouses too.

August 10th, 2015|0 Comments

What are the downsides of using an S Corporation?

First, please take a look at this FAQ. Once you understand why you may want to use a C Corporation, you’ll understand several of the reasons that an S Corporation may not work for you. Next, other downsides include not being able to have more than 100 shareholders, and not being able to have non-individual [...]

August 9th, 2020|0 Comments