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I have a sole proprietorship/Sch C business in 2005 that I…

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I have a sole...

I have a sole proprietorship/Sch C business in 2005 that I converted to an S-corp on 1/1/16. The S-corp was set up in corporated in 2013, but filed "zero" returns for 2013-2015 except for some nominal cash in return for capital stock on b/s. For the 2016 1120S s-corp return, is the beginning balance sheet the 2015 ending balance sheet? Or should I make the beginning balance sheet of the 2016 S-Corp the Sole Proprietorship's 2015 ending balance sheet?

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Submitted: 8 months ago.Category: Tax
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9/14/2017
Tax Professional: Tax.appeal.168, Tax Accountant replied 8 months ago
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Tax.appeal.168, Tax Accountant
Category: Tax
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Hello. Thank you for choosing this Q&A service for assistance. My name is Angela. I will be assisting you.

Let me start by saying that the Sole Proprietorship and the S-Corp are two separate entities.

Q: For the 2016 1120S s-corp return, is the beginning balance sheet the 2015 ending balance sheet? Or should I make the beginning balance sheet of the 2016 S-Corp the Sole Proprietorship's 2015 ending balance sheet?

A: As the entities are separate, for the S-Corp, you would use the balance sheet of the 2016 S-Corp and not the Sole Proprietorship's 2015 ending balance sheet. You might find the information below to be beneficial to you.

____________________________

Tax Consequences of the Multiple Business Entity Structure

While creating multiple business entities may afford the entrepreneur an opportunity to separate liability exposure in his business from his personal assets and the assets of his other business endeavors, certain tax consequences can and will follow. LLC’s, Partnerships and S Corporations offer pass-through taxation treatment. The C Corporation is taxed at the entity level as well as the personal level when dividends are paid to the individual shareholders. All tax consequences should be considered carefully when choosing the form of business entity, regardless of the number of entities formed by the entrepreneur. Layering multiple entity structures may include one of the following entity combinations:

  • An LLC owning multiple LLC’s
  • Limited Partnership owned by a General Partner (another entity) and Limited Partner(s) Individual
  • S Corporation owned by a Single Member LLC
  • S Corporation owned by a Limited Partnership (with all individual partners)
  • S Corporation owned by an S Corporation with one individual shareholder
  • C Corporation owned by another C Corporation, Trust or LLC

It’s worth noting that each business entity has its own tax consequences at the federal and state level. When considering the entity structure, whether forming multiple entities operating in tandem or layered multiple entities, it is wise to consult with both legal counsel and a tax advisor familiar with the appropriate state’s corporate and tax laws. Further more, care should be given to the decisions related to how assets should be titled and recorded on the multiple business’s accounting records.

REFERENCE SOURCE:

https://exitpromise.com/multiple-business-entity-structures-tax-consequences/

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