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Author: ksurf Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121095  
Subject: Transfer of assets into new S-corp Date: 2/27/2000 2:00 PM
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I'm a small home builder,sole propietor,and will elect S-corp status for 2000. Currently,I have 2 houses under construction and two other vacant lots I'll build homes on next year. Should these assets be transfered into the new corporation and become basis? I'll be the only shareholder. What about my truck? I also operate another schedule C business; a vacation rental with short term tenants. I would like to be protected from liability in this business also. Can I include this business in my S-corp as well? Should I? Should this beach house be transfered into the new corporation? I have taken the home office deduction for many years. What happens to this deduction now?
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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 30322 of 121095
Subject: Re: Transfer of assets into new S-corp Date: 2/28/2000 3:34 PM
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<<I'm a small home builder,sole propietor,and will elect S-corp status for 2000.>>

Great...

<< Currently,I have 2 houses under construction and two other vacant lots I'll build homes on next year. Should these assets be transfered into the new corporation and become basis?>>

That's a difficult decision, and one that you should be made with a qualified tax pro. There are plusses and minuses depending on how you are CURRENTLY accounting for the construction in progress (% completion, completed contract, etc.).

<< I'll be the only shareholder. What about my truck?>>

If you want this to be a business truck, it should be transferred.

<< I also operate another schedule C business; a vacation rental with short term tenants. I would like to be protected from liability in this business also.>>

A vacation rental with short term tenants is not a Schedule C business. It's reported on Sch E. That's something that you generally don't want to "incorporate". So if you want to be protected, make sure you purchase insurance. You might consider a large umbrella policy.

<< Can I include this business in my S-corp as well? Should I? Should this beach house be transfered into the new corporation? I have taken the home office deduction for many years.>>

These are all questions that should be directed at a qualified tax pro who can help you with these issues. If you are trying the "do it yourself" route, all you'll do is hurt yourself.

TMF Taxes
Roy

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Author: criser Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 30543 of 121095
Subject: Re: Transfer of assets into new S-corp Date: 3/1/2000 10:01 AM
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Let me echo Roy's advice to consult with a qualified tax pro and also add that you should absolutely positively see a good business attorney as well - and I mean a good one, not your divorce lawyer or real estate attorney, etc. who does a few incorporations a year. In my opinion everyone starting a new business should consult with a tax pro (CPA or attorney) and a business attorney, but your situation is complex enough that not to do so could be disastrous. And, by the way, if, after consulting with you, your attorney recommends you form an LLC instead of a corporation, and your tax advisor has you think about not electing S but rather continuing to be taxed as a sole proprietor (or as a partnership if your spouse is involved in the business), don't be surprised, be happy you've found a progressive team of advisors.

Chris Riser
criser
criser@mayer-riser.com

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Author: RooCat Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 30563 of 121095
Subject: Re: Transfer of assets into new S-corp Date: 3/1/2000 1:26 PM
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And, by the way, if, after consulting with you, your attorney recommends you form an LLC instead of a corporation, and your tax advisor has you think about not electing S but rather continuing to be taxed as a sole proprietor (or as a partnership if your spouse is involved in the business), don't be surprised, be happy you've found a progressive team of advisors.

Chris, I would appreciate it if you would expound a little on this for the board. I see too many people who have incorporated with no real reason (no liability exposure) just because they think they should or have been told they should including those who put real estate under corporations thereby losing the capital gains advantage when they sell. Thanks.

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Author: criser Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 30566 of 121095
Subject: Re: Transfer of assets into new S-corp Date: 3/1/2000 2:33 PM
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I wrote: And, by the way, if, after consulting with you, your attorney recommends you form an LLC instead of a corporation, and your tax advisor has you think about not electing S but rather continuing to be taxed as a sole proprietor (or as a partnership if your spouse is involved in the business), don't be surprised, be happy you've found a progressive team of
advisors.


Then RooCat wrote: Chris, I would appreciate it if you would expound a little on this for the board. I see too many people who have incorporated with no real reason (no liability exposure) just because they think they should or have been told they should including those who put real estate under corporations thereby losing the capital gains advantage when they sell. Thanks.

To which I (briefly, sorry!) reply: There's no business that has no liability exposure. My rule of thumb is, except for a lemonade stand, if you can't afford to form a business entity for your business (an LLC is what I recommend 99% of the time), you probably can't afford to be in business. That would not be the case if the corporation were your only option, because corporate tax treatment, including S treatment, has serious drawbacks that often make a business owner wish he or she could keep sole proprietorship or partnership taxation.

Enter the LLC - superior asset protection for the owner with no-strings passthrough taxation. What are the drawbacks to sole proprietorship and partnership taxation? It's easier to do self-employment/FICA tax planning with an S corp, although it can be done with an LLC taxed as a partnership with "limited partner/investor" type interests. Also, there are certain tax advantages that only apply to corporations, but not many, and not many that Mom & Pop businesses care about too much at the start.

With an LLC you can choose your tax treatment, sole proprietorship, S corp or C corp for a single-member LLC, and partnership, S corp or C corp for a multi-member LLC. And if an LLC starts out with sole proprietorship or partnership taxation, it can switch to S corp or C corp taxation at any time. So, even when it appears that S or C corp taxation might be useful in a few years, you can start out being taxed as a sole proprietor or partnership, then switch midstream, and, with a few minor exceptions in the partnership tax context, with no adverse tax consequences.

Want to know more about tax choices for a startup? See http://www.mayer-riser.com/Articles/business/taxchoice.htm

Chris Riser
criser
criser@mayer-riser.com

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