Taxation

Shareholders in closely held corporations often engage in transactions designed to minimize the double taxation effect of C corporations. Briefly describe the double taxation effect and explain some of the ways double taxation can be minimized. 3. LO.1 Emu Company, which was formed in 2010, had operating income of $200,000 and operating expenses of $120,000 in 2010. In addition, Emu had a long-term capital loss of $10,000.

How does Andrew, the owner of Emu Company, report this information on his individual tax return under the following assumptions?

a. Emu Company is an S corporation and pays no dividends during the year.

b. Emu Company is a C corporation and pays no dividends during the year.

Emily incorporates her sole proprietorship, but does not transfer a building used by the business to the corporation. Instead, the building is leased to the corporation for an annual rent.

What tax reasons might Emily have for not transferring the building to the corporation when the business was incorporated?

 

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