THe procedure is somewhat complex and, if there is a sizeable amount of money involved, it would be in your best interest to hire a qualified CPA (or other specialist) to help you with this.
Basically, the corporation will file a Form 966, a final Form 1120, and a 1099-DIV. There may be other forms involved depending on your specific circumstances. A portion of the distribution will (probably) be considered an ordinary dividend and the remainder will be considered a liquidating distribution. The total amount will be the dollar value of cash as well as the fair market value of any other assets the corporation owns less the amount of liabilities that are distributed to you (if any). If the fair market value of any assets exceeds the tax basis of those assets, the corporatio will report that difference as a "gain" just as if the asset had been sold for fair market value.
Additionally, you will need to file any final state tax returns and complete a corporate dissolution in accordance with the procedures for the state of incorporation.
Feel free to ask any follow up questions necessary to clarify or explain any of this.
jon
Certified Public Accountant (CPA)
I deal with all levels of tax planning and controversy - from the ordinary to the complex.
You can take the cash out in one lump sum or over a period of time. The corporation will need to issue a Form 1099-DIV for the amount of the dividends paid.
There are several factors that you need to consider. The first is, the formula for determining the tax rate on dividends is somewhat complicated and will depend on the total dollar amount in question. The rate could range from 0% to 15%. The formula also is affected by other income (including social security). If you can provide me with some ballpark figures concerning your total income and the total amount of cash that is available to distribute, I can help you ascertain whether there is likely to be any tax on the dividend or not.
The current tax scheme is scheduled to be in place for 2008 - 2010. However, as with all tax laws, there is no guarantee that the scheme will be the same later this year or during 2009 or 2010 - it could be better or worse. Please bear that in mind as you try to decide how to approach this situation.
Keep in mind that the actual tax tables and other information required to calculate an exact amount of tax have not yet been released so what follows is only an estimate and the estimate is basedon taking the full $600,000 in 2008 and a filing status of single.
The tax rate that will apply to qualified dividends for 2008 will be 0% to the extent that you would otherwise be in the 15% bracket. Based on the current tax tables, the amount estimated for 2008 is approximately $33,500. However, a portion of this will be used by the taxable portion of your social security (you social security will become partially taxable due to the increased income). I am estimating that approximately $10,000 will be used by social security leaving $23,500 that will be taxed at 0% and the remainder, $576,500, will be taxed at 15% for a tax of $86,475. Adding the tax on the taxable portion of the social secuirty ($10,000 * 15%) yields a total tax of $96,475 for the year.
Due to various factors, the actual tax will probably be somewhat less than this amount. However, it is also possible that the alternative minimum tax will come into play and that would possibly make the tax higher.