I have previously discussed tax opportunities for selling the business by a C corporation. I would like now to switch our focus to options available to S corporations.
One of the options for an S corporation to sell its business is to sell its underlying assets. This is often a preferred option by a potential buyer as it provides a step up in acquired assets. Unlike a C corporation, the S corporation is a pass-through entity and its federal taxable income is only taxed at a shareholder level. Thus, double taxation is usually avoided with some limited exceptions. (more…)
Selling your business may seem like a natural progression for your company and the possibility of early retirement may look closer than ever, but without careful planning and execution and thorough consideration of the tax impact of sale, eventual financial outcome may end up being much smaller than anticipated.
You can structure sale of your business in two primary ways: 1) sale of the stock or interest in the company or 2) sale of underlying assets. Depending on the structure chosen, special elections made and type of underlying assets, composition of gain as ordinary vs capital may differ significantly and so may the tax liability.
Now let’s consider tax consequences of selling your business under two different scenarios. Under the first scenario, you are the owner of a closely held C corporation. Under the second scenario, you are the owner of a pass-through entity, an S corporation or a partnership. (more…)
It is time to revisit the discussion on changes to revenue recognition. Just to recap, the new standard requires that revenue is recognized when goods or services are transferred to a customer and for the amount the seller expects to be entitled, based on the five step process (not necessarily performed chronologically):
- Identify the contract with the customer
- Identify the separate performance obligations
- Determine the transaction price
- Allocate the transaction price to the individual performance obligations
- Recognize revenue as the performance obligations are satisfied
The new standard is effective for privately held companies for annual reporting periods beginning after December 15, 2018, with early adoption allowed for annual reporting periods beginning after December 15, 2016 (calendar year 2017!) (more…)
My first post about the FASB GAAP Simplification Initiative was in April 2015, and I have posted since then about specific GAAP changes under this umbrella that seemed to bestow the most widespread consequences for companies in Silicon Valley. Now seems like a good time to look back over the past year and a half for other GAAP simplification subjects you might not know about, but are not exactly esoteric topics. (more…)
Business entities use insurance to provide protection against various risks ranging from natural disasters to cyber threats. As our economy has evolved the risks that can be insured against have grown more complex. An introduction to business insurance was the topic of our August, 2015 Emerging Business Group seminar. One traditional use of insurance is to provide funds to compensate a business in the event of the death of a founder or other key employee. For founders and other stockholders, the life insurance proceeds received by the entity can be used to fund the purchase of the founder’s ownership interest in that entity. In the case of key employees, life insurance proceeds can help to offset potential revenue losses or increased costs incurred while the entity determines how to deal with the knowledge and resources lost due to their employee’s death. (more…)
A recent survey conducted by the Association of Certified Fraud Examiners (ACFE) estimates that fraud losses for a typical organization amount to 5% of total revenues each year with median losses to the tune of $150,000. More than one‐fifth of such losses hit the million dollar mark. The most common type of fraud: asset misappropriation with median losses of $125,000 comprised 83% of all fraud cases reported while financial statement fraud schemes made up just 10% of the total fraud cases, but caused the greatest median loss at nearly $1 million. The frauds reportedly lasted 18 months before being detected. The most telling fact was that private companies logged the highest median loss of $180,000 in comparison to public companies, government, non-profit and other sectors. (more…)
June 30th deadline for filing the Form 114 – Individuals Filing the Report of Foreign Bank and Financial Accounts has passed, but the IRS continues its fight to secure US tax revenue from foreign financial accounts. (more…)
Historically originating through the lens of the independent auditor, whose auditing standards require the auditor to consider “going concern” matters and potentially include cautionary language in the auditor’s report, all companies that issue GAAP-based financial statements are now required to perform their own evaluation and provide explanatory footnote disclosures in defined circumstances. (more…)
The treaty signed between India and Mauritius in 1983, a decade before India opened its door to foreign investors made Mauritius the most favored route to invest in India. Many foreign companies incorporated a holding company in Mauritius which held shares in an Indian company. The sale of shares in Indian company would not result in capital gains tax in India and Mauritius- thereby making it a preferred vehicle for foreign investment.
According to government data, from 2000 – 2015, about $94 billion, a third of all foreign direct investment into India, came via Mauritius. It was a boon to the Indian economy at the brink of liberalization in 1990’s, but gave rise to “round tripping” i.e., Income on which taxes were not paid was routed via Mauritius companies to avoid tax, revenue loss and treaty abuse. (more…)