Tricky Times for Corporations

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The two trickiest times for a new corporation are (1) at the beginning and (2) at the ending. Do you know how to transfer your business assets into a corporation inthe best possible way?

I got a great question at the FirstClass Lounge. A medical professional with a practice asked about something he did (or rather didn’t do) 10 years earlier.

The first part of my answer was, “there’s nothing we can do about it.” When you catch a mistake you made that affects your tax return, you’re generally limited to going back to amend for just 3 years. The 3 year ticker starts when you file the return, or when you could have filed it. For example if you took a filing extension all the way out to the maximum of October 15th, and then filed your tax return early, on September 1st, you would count forward from the October 15th date. That’s how long you would have to amend your return.

In this case, the doctor transferred his practice assets into an S Corporation and the bookkeeper took the “book value” as the recorded amount for the transfer. He wondered what happened to all the goodwill that had been built up in his practice. It’s a great question, but sometimes you have to think about the ramifications when you “write up” the value. Let’s say the goodwill value was $1 million. If that’s what the doctor transferred the assets from the Sole Proprietorship to the S Corporation at – the $1 million plus whatever the book value showed – he could have done that. BUT, he would then also have had to show $1 million in gain on the transfer…and that amount would then become taxable immediately.

So, sometimes just because you can do something doesn’t mean you SHOULD do something. That advice works with my 16 year old son…and it works with tax planning as well.

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