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gregmey
gregmey, CPA
Category: Multiple Problems
Satisfied Customers: 147
Experience:  Certified Public Accountant & Certified Financial Planner
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1. What does CLADR stand for and how does it relate to the

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1. What does CLADR stand for and how does it relate to the current useful lives assigned to assets?
2. What is bonus depreciation and is it still available to taxpayers?
3. What is the ADS system and what is its significance?

Is there any reason why a company can't pay its empolyees very high salaries to help mitigate the harsh effects of double taxation?

gregmey :

Hi, my name is XXXXX XXXXX I'm happy to help you with your question today.

gregmey :

  1. CLADR stands for Class Life Asset Depreciation Range. It is a method of depreciation that was used prior to January 1, 1981. It assigns a lower and upper limit of useful life to each asset class and then uses the midpoint as a basis for depreciation.

  2. Bonus depreciation allows a taxpayer to write off their capital expenditure at an accelerated rate. Bonus depreciation is still available to taxpayers under Section 179. Section 179 allows taxpayers to receive bonus depreciation for up to $139k of immediate depreciation deduction in 2012. The 179 limits may change from year to year.

  3. ADS stands for the Alternative Depreciation System. It is an alternative depreciation system to MACRS and uses a straight line recovery period. Taxpayers may prefer the ADS method if it allows for a better match of depreciation deduction against income from the depreciating asset.

  4. In order for an employees pay to be deductible by a corporation it must be ordinary and necessary in the course of business and the amount of compensation must be reasonable and must be in return for services performed. The reasonable test is determined by an employee’s duties, the volume of business handled, and their amount of responsibility. If a corporation pays an employee who is also a shareholder a salary that is deemed unreasonably high, the excess part of the salary (over the reasonable amount) would be considered a distribution to the employee-shareholder and would be taxable to the corporation.


 

gregmey :

Please let me know if you have any further questions

gregmey :

Thanks, Greg

Customer:

Nice

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Hi,

I'm just following up with you to see how everything is going. Did my answer help?

Let me know if I can help you with any additional questions.

Thanks,

Greg
Customer: replied 5 years ago.
Thanx, Given the popularity of LLCs (limited liability companies), why choose an S corporation if the tax consequences are basically the same?
From a tax and nontax perspective, what are the advantages and disadvantages of S corporation status versus regular C corporation status?
Thanks for the question. I will respond tonight. Thanks, Greg
1. The biggest reason for choosing an S corporation over an LLC is to save money on payroll taxes. An S corporation has to pay the owner a reasonable wage for the services performed. Any profit after deducting wages can be distributed to the owner in the form of a dividend distribution, which is taxed at a lower rate and not subject to payroll taxes. With a LLC all the profits flow back to the owner and are subject to self-employment tax.

2. The benefits of an S corporation are that they are taxed as a flow through entity and avoid the double taxation that occurs with a C corporation. A C corporation is taxed at both the corporate and the individual level. There are some ownership restrictions that may be disadvantages for an S corporation. Each shareholder must be a US citizen and the number of shareholders is limited to 100. Also, S corporations cannot be owned by C corporations, other S corporations, LLCs or many trusts. Also, S corporations can only have 1 class of stock while C corporations can have multiple levels of stock. C corporations may pay more in tax but they provide greater flexibility.
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