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49-439: Springwater Center is a 12,000-square-foot (1,100 m) building located on 200 acres of land that includes rolling hills, a rushing stream, miles of hiking trails, hardwood forests, and a pond. The center hosts 14 shared guest rooms, and a meditation hall that can accommodate forty-five guests. There is a dining room, library, exercise room, sauna, and solarium. Springwater Center is operated by full-time staff. Springwater Center

98-506: A business or investments. In the U.S. system, these (as well as certain business or investment expenses) are referred to as " itemized deductions " for individuals. The UK allows a few of these as personal reliefs. These include, for example, the following for U.S. residents (and UK residents as noted): Many systems provide that an individual may claim a tax deduction for personal payments that, upon payment, become taxable to another person, such as alimony. Such systems generally require, at

147-433: A component of the entity's net income in some jurisdictions. Deductions of flow-through entities may pass through to members of such entities separately from the net income of the entity in some jurisdictions or some cases. For example, charitable contributions by trusts, and all deductions of partnerships (and S corporations in the U.S.) are deductible by member beneficiaries or partners (or S corporation shareholders) in

196-587: A deduction for the cost of goods sold . This may be considered an expense, a reduction of gross income , or merely a component utilized in computing net profits. The manner in which cost of goods sold is determined has several inherent complexities, including various accounting methods. These include: Many systems, including the United Kingdom , levy tax on all chargeable "profits of a trade" computed under local generally accepted accounting principles (GAAP). Under this approach, determination of whether an item

245-515: A fiscal year (a year ending on the last day of a month other than December) is used, by the 15th day of the third month immediately following the last day of the fiscal year. The corporation must complete a Schedule K-1 for each person who was a shareholder at any time during the tax year and file it with the IRS along with Form 1120S. The second copy of the Schedule K-1 must be mailed to the shareholder. As

294-444: A government specified life. Alternative approaches are used by some systems. Some systems allow a fixed percentage or dollar amount of cost recovery in particular years, often called "capital allowances." This may be determined by reference to the type of asset or business. Some systems allow specific charges for cost recovery for some assets upon certain identifiable events. Capitalization may be required for some items without

343-974: A manner appropriate to the deduction and the member, such as itemized deductions for charitable contributions or a component of net business profits for business expenses. One important aspect of determining tax deductions for business expenses is the timing of such deduction. The method used for this is commonly referred to as an accounting method. Accounting methods for tax purposes may differ from applicable GAAP . Examples include timing of recognition of cost recovery deductions (e.g., depreciation), current expensing of otherwise capitalizable costs of intangibles, and rules related to costs that should be treated as part of cost of goods not yet sold. Further, taxpayers often have choices among multiple accounting methods permissible under GAAP and/or tax rules. Examples include conventions for determining which goods have been sold (such as first-in-first-out, average cost, etc.), whether or not to defer minor expenses producing benefit in

392-1047: A minimum, reporting of such amounts, and may require that withholding tax be applied to the payment. Some systems allow a deduction to a company or other entity for expenses or losses of another company or entity if the two companies or entities are commonly controlled. Such deduction may be referred to as "group relief." Generally, such deductions function in lieu of consolidated or combined computation of tax ( tax consolidation ) for such groups. Group relief may be available for companies in EU member countries with respect to losses of group companies in other countries. Many systems impose limitations on tax deductions paid to foreign parties, especially related parties. See International tax and Transfer pricing . Australia: Australian Taxation Office : Canada: United Kingdom: HM Revenue and Customs : United States: Internal Revenue Service : India: S corporations An S corporation (or S Corp), for United States federal income tax ,

441-423: A regular C corporation. An S corporation's election will also terminate if, for each of three consecutive years, (i) its passive investment income exceeds 25% of gross receipts and (ii) it has accumulated earnings and profits. § 1362(d)(3). An S corporation will only have accumulated earnings and profits if it was a C corporation at some time, or acquired or merged with a C corporation. [1] The S election affects

490-431: A shareholder in another, subsidiary S corporation if the first S corporation owns 100% of the stock of the subsidiary corporation, and an election is made to treat the subsidiary corporation as a "qualified subchapter S subsidiary" (QSub). After the election is made, the subsidiary corporation is not treated as a separate corporation for tax purposes, and all "assets, liabilities, and items of income, deduction, and credit" of

539-402: A small number of shareholders in order to take advantage of the beneficial features of the corporate form; this is particularly true of firms established prior to the advent of the modern limited liability company . Therefore, taxation of S corporations resembles that of partnerships. Unlike a C corporation, an S corporation is not eligible for a dividends received deduction and not subject to

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588-470: A state tax law equivalent to an S corporation, so that the S corporation in certain states may be treated the same way for state income tax purposes as it is treated for Federal purposes. A state taxing authority may require that a copy of the Form 1120S return be submitted to the state with the state income tax return. Some states such as New York and New Jersey require a separate state-level S election in order for

637-438: A tax deduction for cost recovery in a future period. A common approach to such cost recovery is to allow a deduction for a portion of the cost ratably over some period of years. The U.S. system refers to such a cost recovery deduction as depreciation for costs of tangible assets and as amortization for costs of intangible assets. Depreciation in these systems is allowed over an estimated useful life, which may be assigned by

686-472: Is a closely held corporation (or, in some cases, a limited liability company (LLC) or a partnership ) that makes a valid election to be taxed under Subchapter S of Chapter 1 of the Internal Revenue Code . In general, S corporations do not pay any income taxes . Instead, the corporation's income and losses are divided among and passed through to its shareholders . The shareholders must then report

735-624: Is a (501)(c)(3) non-profit organization, and retreats, membership dues, and donations are tax-deductible . There are numerous retreats scheduled throughout the year, as well as Saturday sittings and quiet weeks. Retreats were formerly led by Toni Packer , and are currently led by those she asked to carry on her work. There are opportunities for individual meetings with the facilitating teacher, group dialogue meetings, and individual meetings between retreat participants. Non-hierarchical forms of dialogue allow participants to share and inquire into their experiences on an equal footing. This approach contrasts

784-534: Is a fixed allowance for the taxpayer and certain family members or other persons supported by the taxpayer. The U.S. allows such a deduction for "personal exemptions" for the taxpayer and certain members of the taxpayer's household. The UK grants a " personal allowance ." Both U.S. and UK allowances are phased out for individuals or married couples with income in excess of specified levels. In addition, many jurisdictions allow reduction of taxable income for certain categories of expenses not incurred in connection with

833-487: Is allowed, for example, on interest paid on student loans. Some systems allow taxpayer deductions for items the influential parties want to encourage as purchases. Nearly all jurisdictions that tax business income allow deductions for business and trade expenses. Allowances vary and may be general or restricted. To be deducted, the expenses must be incurred in furthering business, and usually only include activities undertaken for profit. Nearly all income tax systems allow

882-446: Is an amount deducted from taxable income, usually based on expenses such as those incurred to produce additional income. Tax deductions are a form of tax incentives , along with exemptions and tax credits . The difference between deductions, exemptions, and credits is that deductions and exemptions both reduce taxable income, while credits reduce tax. Above and below the line refers to items above or below adjusted gross income, which

931-429: Is deductible depends upon accounting rules and judgments. By contrast, the U.S. allows as a deduction "all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business..." subject to qualifications, enhancements, and limitations. A similar approach is followed by Canada, but generally with fewer special rules. Such an approach poses significant definitional issues. Among

980-592: Is item 37 on the tax year 2017 1040 tax form. Tax deductions above the line lessen adjusted gross income, while deductions below the line can only lessen taxable income if the aggregate of those deductions exceeds the standard deduction, which in tax year 2018 in the U.S., for example, was $ 12,000 for a single taxpayer and $ 24,000 for married couple. Often, deductions are subject to conditions, such as being allowed only for expenses incurred that produce current benefits. Capitalization of items producing future benefit can be required, though with some exceptions. A deduction

1029-559: Is part of a larger IRS effort to improve tax compliance and reduce the estimated $ 300 billion gap in gross reported figures each year. A large portion of that gap is thought to come from small businesses (and particularly S corporations, which are now the most common corporate entity, numbering over four million in 2011, up from three million in 2002 and about 750,000 in 1985). States impose tax laws and regulations for corporate income and distributions, some of which may be directed specifically at S Corporations. Some but not all states recognize

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1078-549: Is taxed at the shareholder level and not at the corporate level. Payments to S shareholders by the corporation are distributed tax-free to the extent that the distributed earnings were previously taxed. Like a C corporation , an S corporation is generally a corporation under the law of the state in which the entity is organized. With modern incorporation statutes making the establishment of a corporation relatively easy, firms that might traditionally have been run as partnerships or sole proprietorships are often run as corporations with

1127-476: Is the case for any other corporation, the FICA tax is imposed only with respect to employee wages and not on distributive shares of shareholders. Although FICA tax is not owed on distributive shares, the IRS and equivalent state revenue agencies may recategorize distributions paid to shareholder-employees as wages if shareholder-employees are not paid a reasonable wage for the services they perform in their positions within

1176-528: The Federal Court ruled in Commissioner of Taxation v La Rosa that a heroin dealer was entitled to a tax deduction for money stolen from him in a drug deal. Many systems require that the cost of items likely to produce future benefits be capitalized. Examples include plant and equipment, fees related to acquisition, and developing intangible assets (e.g., patentable inventions). Such systems often allow

1225-547: The 1.5% net income tax. Conversely, for high-gross-revenue, low-profit-margin businesses, the LLC franchise tax fees may exceed the S corporation net income tax. S Corporations operating in the City of Wilmington are not subject to the city's 1.25% net profits tax. Employee wages are subject to the city's 1.25% wage tax. In New York City, S corporations are subject to the full corporate income tax at an 8.85% rate. If one can demonstrate that

1274-446: The IRS to show leniency with regard to late S elections. Accordingly, often, the IRS will accept a late S election. If a corporation that has elected to be treated as an S corporation ceases to meet the requirements (for example, if as a result of stock transfers, the number of shareholders exceeds 100 or an ineligible shareholder such as a nonresident acquires a share), the corporation will lose its S corporation status and revert to being

1323-658: The Internal Revenue Code (sections 1361 through 1379). The United States Congress , acting on the Department of Treasury's suggestion of 1946, created this chapter in 1958 as part of a larger package of miscellaneous tax items. S status combines the legal environment of C corporations with U.S. federal income taxation similar to that of partnerships. As with partnerships, the income, deductions, and tax credits of an S corporation flow through to shareholders annually, regardless of whether distributions are made. Thus, income

1372-743: The QSub are treated belonging to the parent S corporation. Spouses (and their estates) are automatically treated as a single shareholder. Families, defined as individuals descended from a common ancestor, plus spouses and former spouses of either the common ancestor or anyone lineally descended from that person, are considered a single shareholder as long as any family member elects such treatment. An S corporation may only have one class of stock . A single class of stock means that all outstanding shares of stock confer "identical rights to distribution and liquidation proceeds," i.e. profits and losses are allocated to shareholders proportionately to each one's interest in

1421-555: The United States limits deductions related to passive activities to income from passive activities. In particular, expenses that are included in COGS cannot be deducted again as a business expense. COGS expenses include: In 2005, the Australian government amended its taxation legislation to remove deductions for expenses incurred in conducting criminal business activities. This came after

1470-704: The appreciation occurred during the time the corporation was a C corporation, the S corporation will probably pay C corporation taxes on the appreciation – even though the corporation is now an S corporation. This Built In Gain (BIG) tax rate is 35% on the appreciated property, but is only realized if the BIG property is sold within 10 years (starting from the first day of the first tax year of conversion to S –Corp status). The American Recovery and Reinvestment Act of 2009 reduced that 10-year recognition period to seven years (if that seventh year precedes either 2009 or 2010). The Small Business Jobs Act of 2010 further reduced

1519-475: The business. § 1.1361-1(l)(1). Differences in voting rights are disregarded, which means that an S corporation may have voting and nonvoting stock. If a corporation meets the foregoing requirements and wishes to be taxed under Subchapter S, its shareholders may file Form 2553 : "Election by a Small Business Corporation" with the Internal Revenue Service (IRS). The Form 2553 must be signed by all of

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1568-438: The company. In 2005, the IRS launched a study to assess the reporting compliance of S corporations The study began in late 2005 and examined 5,000 randomly selected S corporation returns from tax years 2003 and 2004. The IRS intends to use the results to measure compliance in recording of income, deductions and credits from S corporations, and to formulate future audit criteria to better target likely non-compliant returns. This

1617-503: The corporation to be treated, for state tax purposes, as an S corporation. S corporations pay a franchise tax of 1.5% of net income in the state of California ( minimum $ 800). This is one factor to be taken into consideration when choosing between a limited liability company and an S corporation in California. For highly profitable enterprises, the LLC franchise tax fees (minimum $ 800), which are based on gross revenues, may be lower than

1666-430: The corporation to the shareholder, but instead to the portion of the corporation's income, losses, deductions or credits that are reported to the shareholder on Schedule K-1 and are shown by the shareholder on his or her own income tax return. A distribution to a shareholder that is in excess of the shareholder's basis in his or her stock is taxed to the shareholder as capital gain. Quarterly estimated taxes must be paid by

1715-399: The corporation's shareholders. If a shareholder resides in a community property state, the shareholder's spouse generally must also sign the 2553. The S corporation election must typically be made by the fifteenth day of the third month of the tax year for which the election is intended to be effective, or at any time during the year immediately preceding the tax year. Congress has directed

1764-425: The definitional issues often addressed are: Note that under this concept, the same sorts of expenses are generally deductible by business entities and individuals carrying on a trade or business. To the extent such expenses relate to the employment of an individual and are not reimbursed by the employer, the amount may be deductible by the individual. Business deductions of flow-through entities may flow through as

1813-642: The employee; 6.2% Social Security paid by the employer; 1.45% employee Medicare and 1.45% employer Medicare). The distribution of the additional profits from the S corporation will be done without any further FICA tax liability. If for some reason, Alex (as the majority owner) were to decide not to distribute the money, both Alex and Jesse would still owe taxes on their pro-rata allocation of business income, even though neither received any cash distribution. To avoid this "phantom income" scenario, S corporations commonly use shareholder agreements that stipulate at least enough distribution must be made for shareholders to pay

1862-422: The government for numerous classes of assets, based on the nature and use of the asset and the nature of the business. The annual depreciation deduction may be computed on a straight line, declining balance, or other basis, as permitted in each country's rules. Many systems allow amortization of the cost of intangible assets only on a straight-line basis, generally computed monthly over the actual expected life or

1911-437: The hierarchical and solitary retreat form, whereby the participant only interacts with a designated authority. Meditative inquiry is a common term heard at Springwater Center during silent retreats. While the term is difficult to strictly define, it is often understood as a subtle state of mind that is open and receptive to wondering and questioning in a state of not knowing. Tax deduction A tax deduction or benefit

1960-498: The holding of assets to produce income. In such systems, there may be additional limitations on the timing and nature of amounts that may be claimed as tax deductions. Many of the rules, including accounting methods and limits on deductions, that apply to business expenses also apply to income producing expenses. Many systems allow a deduction for loss on sale, exchange, or abandonment of both business and non-business income producing assets. This deduction may be limited to gains from

2009-507: The immediately succeeding period, etc. Accounting methods may be defined with some precision by tax law, as in the U.S. system, or may be based on GAAP, as in the UK system. Many systems limit particular deductions, even where the expenses directly relate to the business. Such limitations may, by way of example, include: In addition, deductions in excess of income in one endeavor may not be allowed to offset income from other endeavors. For example,

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2058-506: The income or loss on their own individual income tax returns . S corporations are ordinary business corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. The term "S corporation" means a "small business corporation" which has made an election under § 1362(a) to be taxed as an S corporation. The S corporation rules are contained in Subchapter S of Chapter 1 of

2107-596: The individual to avoid tax penalties, even if this income is "phantom income". Widgets Inc., an S Corp, makes $ 10,000,000 in net income (before payroll) in 2006 and is owned 51% by Alex and 49% by Jesse. Keeping it simple, Alex and Jesse both draw salaries of $ 94,200 (which is the Social Security Wage Base for 2006, after which no further Social Security tax is owed). Employee salaries are subject to FICA tax (Social Security & Medicare tax) – currently 15.3 percent (6.2% Social Security paid by

2156-431: The potential for cost recovery until disposition or abandonment of the asset to which the capitalized costs relate. This is often the case for costs related to the formation or reorganization of a corporation, or certain expenses in corporate acquisitions. However, some systems provide for amortization of certain such costs, at the election of the taxpayer. Some systems distinguish between an active trade or business and

2205-408: The recognition period to five years. If a shareholder owns more than 2% of the outstanding stock, amounts paid for group health insurance for that shareholder are included on their W-2 as "wages". The same applies to amounts contributed to health savings accounts (HSA). Form 1120S generally must be filed by March 15 of the year immediately following the calendar year covered by the return or, if

2254-477: The same class of assets. In the U.S., a loss on non-business assets is considered a capital loss, and deduction of the loss is limited to capital gains. Also, in the U.S. a loss on the sale of the taxpayer's principal residence or other personal assets is not allowed as a deduction except to the extent due to casualty or theft. Many jurisdictions allow certain classes of taxpayers to reduce taxable income for certain inherently personal items. A common such deduction

2303-451: The taxes on their distributive shares. S corporations that have previously been C corporations may also, in certain circumstances, pay income taxes on untaxed profits that were generated when the corporation operated as a C corporation. This is very common with uncollected accounts receivable or appreciated real estate. For example, if an S corporation that was formerly a C corporation sells an appreciated asset (such as real estate) and

2352-744: The ten percent of taxable income limitation applicable to charitable contribution deductions. A corporation is eligible if it: A limited liability company (LLC) is eligible to be taxed as an S corporation under the check-the-box regulations at § 301.7701-2. The LLC first elects to be taxed as a corporation , at which point it becomes a corporation for tax purposes; then it makes the S corporation election under section 1362(a). Shareholders must be U.S. citizens or residents (not nonresident), and must be natural persons, so corporations and partnerships are ineligible shareholders. Certain trusts, estates, and tax-exempt corporations, notably 501(c)(3) corporations, are permitted to be shareholders. An S corporation may be

2401-542: The treatment of the corporation for Federal income tax purposes. The election does not change the requirements for that corporation for other Federal taxes such as FICA and Federal unemployment taxes. While an S corporation is not taxed on its profits, the owners of an S corporation are taxed on their proportional shares of the S corporation's profits. Actual distributions of funds, as opposed to distributive shares, typically have no effect on shareholder tax liability. The term "pass through" refers not to assets distributed by

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