What are the tax consequences for liquidating a corproation

Capital gains and sales remain within the the tax-deferred account and do not face taxation until you start making withdrawals.

If you begin making withdrawals from a tax-deferred account after reaching retirement age, you could be in a lower tax bracket than when you sold your shares.

Mutual funds offer professional management of your money, along with diversification of investments.

Mutual-fund managers pool money invested by multiple investors and use the funds to reinvest in securities such as bonds or stocks.

Many businesses start as S corporations for good tax reasons, but later in their lifecycle want to convert to a tax partnership (such as an LLC taxed as a partnership) for a variety of business and tax reasons.

One method to convert to a tax partnership tax-free, without undergoing an inversion, is the “LLC drop-down,” which entails the S corporation forming a wholly-owned LLC, that is initially a disregarded entity for tax purposes, and transferring all of the S corporation’s assets and business to the new LLC.Once this is accomplished, the new investors can invest in the business by investing into the new LLC, which will become a tax partnership.However, this restructuring is deceptively simple, because migrating the S corporation’s business to the new LLC can create many issues, including (1) migrating employees, payroll, and benefit plans to the new LLC; (2) opening new operating and payroll bank accounts for the new LLC; (3) consulting with insurance agents to obtain coverage for the new LLC; (4) assigning customer, lease, vendor, and other key agreements to the new LLC, which oftentimes requires the counterparty’s consent; (5) transferring or obtaining new licenses and permits for the new LLC to operate the business; and (6) obtaining lender consent.Now the old business is in a new LLC that can take on new investors in a tax partnership format and without many of the headaches of migrating a business to a new legal entity.For guidance on this structure, see Treasury Regulation Section 1.1361-5(b)(c), Example 2.

Leave a Reply