Tax Guru – Ker$tetter Letter

Q:

Subject: S CORPS

I was reading your article on S Corps and was wondering if each corporate officer must be a shareholder in the S Corp?  In other words, does the title of corporate officer imply ownership or can it be a status only recognized perhaps in the articles of incorporation or even set up at a later date?  (ie is it possible to be a corporate officer in as S Corp but not receive a K1?)

 Thanks for any input you can forward.

A:

While it is very common with small corporations for one person or a few persons to encompass all of the roles in operating them, that is not required.  Different people can have different roles.

It is really no different than with a large billion dollar corporation, where the roles are usually held by different people.  The most common roles are shareholders, officers, directors and employees.  Although a person can have more than one of those roles, they don’t have to and can just fill one role at a time.

So, with an S corp, just as with a C corp, the shareholders can be different people than the officers or than the directors or than the employees.  The critical difference for S corps is that there are special limits on who can be a shareholder without jeopardizing the S status.  Your personal professional tax advisor can assist you in complying with those restrictions.

Besides consulting with your own personal professional tax advisor before setting up a corp or making any major decisions as to its strategies, you may want to check out the very useful reference materials on the principles of corporations and how to operate them properly from such sources as Nolo Press.   I have been using their books for well over 20 years and still frequently refer to them.  Reading over them will save you a lot of legal fees, as well as keep you out of trouble.

Good luck.  I hope this helps.

Kerry Kerstetter

Q:

Subject: Historical annual tax free gift allowances

Kerry,

What were the annual tax free allowances for gift taxes from 1965 to 2007 by year?

 Example

 2007                                                                                  $ 12,000

2006                                                                                              $ 12,000

2005                                                                                              ?

2004                                                                                              ?

2003                                                                                              ?

 

     1965                                              ?

A:

My policy is to not answer homework questions.  However, check out this post from almost four months ago. 

Kerry Kerstetter

Q:

Subject: c vs. s corp, llc, and other other choices I might have….

Hello,

 

I ran across a page from your webiste on the s corp vs. c corp that was very informative and quite good.  I am knowledgeable in these areas and have been talking to lawyers, accountants, etc… about the best way to structure my businesses…. for tax reasons… but also quite importantly… liability reasons….. and want to set up a structure that would protect my personal assests from the company’s in the event of any lawsuits etc…  The business I am in… and most concerned with is the fitness business(gym ownership).  Questions arise when talking about “piercing” the corporate veil??  Any articles/opinions relating to that….?

 

I intend to look at your websites… blog etc.. in more detail soon.

 

Thanks,

A:

You are correct that maintaining the proper separation between your personal and corporate things is very important in order to protect against piercing the corporate shield by either IRS or overly aggressive attorneys.  Many small corporate owners do jeopardize this protection by commingling their personal and corporate records and assets.  This gives IRS and attorneys a perfect opportunity to ignore the corporate shield and accuse the owners of operating as if the corp is merely an alter ego of themselves.

I’m not an attorney; so I don’t write a lot about this.  I’m sure there are plenty of blogs by attorneys out there that will provide a variety of opinions on this subject.  However, the ultimate decisions as to whether you are conducting yourself properly in this regard should be determined with the assistance of your personal legal counsel, with input from your personal professional tax advisor.

Good luck.

Kerry Kerstetter

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Some interesting recent articles from the WSJ’s free RealEstate Journal:

Splitting the Cost of a Home When You Can’t Go It Alone – Includes a discussion of Equity Sharing, a strategy that a lot of clients used back in the Bay Area.

Why the IRS Is Showing Mercy To Some Home Sellers – More acceptable unforeseen circumstances that allow home sellers to use the prorated tax free exclusion of gain.

How to Save by Selling Your House Online – Just like with do it yourself tax return software, there’s a big element of “you get what you pay for” with real estate deals.  Good Realtors justifiably earn their commissions.

Victims of 2005 Hurricanes Get Additional Year to Sell Vacant Land – IRS is allowing these folks an extension of the normal two year deadline for a tax free sale of land that is part of their primary residence.