Taxation Differences between S Corps and C Corps

Capital Preservation Services is headquartered in Flowood, Mississippi, and focuses on tax structuring for businesses. Having been in existence for more than 15 years, Capital Preservation Services has worked with numerous business owners and professional service providers with tax-related issues.

Picking a tax structure for your business can be confusing. Business owners must be well-informed to when selecting their companies’ tax structure, as it can affect both short-term savings and taxes payable in the long run. Certain tax structures are restricted to certain types of businesses. Before selecting a tax structure, you must ensure your business type is eligible for the structure you are interested in. Two popular structures are S corporations and C corporations.

S corporations are pass-through entities, which means their income is passed directly to the owners, who pay the income taxes. The payments made to owners by an S corporation may be considered distributions or salary. S corporations can offer significant tax savings for shareholders because only the shareholder's salary is subject to employment taxes.

C corporations are not pass-through entities, which means their income is taxed at both the corporation level and at the distribution level (also referred to as “double taxation”). However, the tax rate at the corporation level is lower than it would be if distributed to the owners/shareholders. If shareholders plan to leave some profits in the business to cover future operating costs, it may be advantageous to form a C corporation. 

Strategies for Year-End Tax Planning in 2020

Capital Preservation Services is led by a team of established professionals committed to serving business owners' tax-planning needs. At Capital Preservation Services, customized strategies are put in place to help businesses reduce tax liabilities.

Year-end tax planning is always important. However, the year 2020 has been unprecedented in many ways, and many businesses have experienced challenges due to the COVID-19 pandemic. The Coronavirus Aid, Relief and Economic Security Act and Tax Cuts and Jobs Act allow corporations to claim unused Alternative Minimum Tax credits, giving businesses opportunities to file for quick refunds.

According to President Donald Trump’s COVID-19 disaster declaration, businesses in all 50 states may be eligible for refunds from particular forms of losses. This provision allows businesses to claim quick refunds for losses related to the COVID-19 pandemic.

Also, the IRS guidelines provide relief for businesses that invest in Qualified Opportunity Funds. Considering such factors, businesses that anticipate a loss at the end of the year can file for quick refunds after being appropriately guided by a team of professionals. 

How You Can Reduce Your Taxes with a Health Savings Account

Capital Preservation Services offers clients advanced tax planning guidance. The professionals at Capital Preservation Services work closely with clients to identify ways they can save on taxes based on their financial circumstances. People may have several ways of reducing their tax burden that they are not taking full advantage of, such as funding a health savings account (HSA).

People with a high-deductible healthcare plan may qualify for an HSA. This tax-exempt account allows people to cover qualified medical expenses while reducing overall tax liability. All contributions to an HSA are tax-deductible and the withdrawals are likely to be untaxed as long as they are used for certain medical expenses.

In 2020, individuals can contribute up to $3,550 to an HSA provided they have high-deductible, self-only coverage. Families with high-deductible coverage may be able to contribute up to $7,100. Employers often offer an HSA, but individuals can also start their own accounts through a bank or other financial institution. Tax professionals can help people make the most of their HSA savings.

 

Section 179 Strategies for Deducting Taxes on Equipment and Property

Serving the needs of Mississippi clients, Capital Preservation Services offers a full range of tax planning solutions. One area of focus for the Capital Preservation Services team is strategies for purchasing equipment for a business prior to the year's end in ways that reduce taxes.

Applicable to purchases of equipment and machinery used within a business or trade, Section 179 depreciation deductions also apply to qualified real property. A benefit of these deductions is that they provide for immediate tax write-offs, rather than depreciation deductions taken over time.

The Tax Cuts and Jobs Act (TCJA) expanded Section 179 through a bonus depreciation tax break, which allows the entire cost of eligible assets that are placed in service in the current year to be written off that same year.

The TCJA also increased Section 179 annual deduction limits from $500,000 to $1.02 million and expanded qualifying assets to encompass depreciable tangible personal property, provided that it is used in furnishing lodgings.

With TCJA, the qualified real property definition has also been expanded in ways that include specific improvements to nonresidential real property. This includes roofs, HVAC systems, and security and fire alarm systems. Because of the complexities of Section 179 deductions, it makes sense to consult with an established tax planning firm to determine optimal ways of writing off qualifying assets.

Insightful Talks at the 2019 Tax Savings in the Sand Conference

Financial Plannig
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Led by its president J. Todd Mardis, Capital Preservation Services is a tax planning firm that helps business owners benefit from qualified tax deductions. To further its mission, Capital Preservation Services holds an annual conference. It held its last conference between 11 and 13 July, 2019, at the Baytowne Conference Center in Destin, Florida.

The conference included numerous tax-related presentations delivered by accredited professionals. On July 12, Mr. Mardis welcomed everyone for coming and opened with a video titled, “The Tax Train is Coming.” Next was a presentation by attorney Walt Dallas on how changes to the tax code would affect CPS clients. CPA Renee Moore followed up with a discussion on record keeping and documentation for taxes. Other presenters that day included Mike Frascogna (intellectual property attorney) and Drew Fairley (CPA) who talked about effective marketing and 401(k) compliance respectively.

On July 13, Mr. Mardis opened the floor with an overview of captive insurance. Appraiser Joey Vegliacich was next. He explained to the audience how dwelling unit rental rate appraisals worked and even showed them how to use these units in their tax plans. Later that day, Mr. Mardis took to the stage for the last time and talked about private conservation easements for land purchases before wrapping up the conference with a detailed comparison of non-qualified deferred compensation plans and qualified retirement plans.

Backdoor Roth IRAs as a Tax Friendly Income-Saving Approach

Savings
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Capital Preservation Services is a Flowood, Mississippi company that offers coordinated tax planning solutions for businesses and high net worth individuals. Client focused, Capital Preservation Services has developed tax savings strategies that meet the needs of professionals such as physicians, attorneys, and dentists.

High-income earners looking toward retirement may consider Roth individual retirement accounts, which allow tax-free savings of $5,500 annually ($6,500 for those over the age of 50). One limiting factor is that having a modified adjusted gross income of $120,000 ($189,000 for married couples) excludes the taxpayer from contributing to a Roth IRA.

One strategy around this is the backdoor Roth, which is suited to those who have already contributed the maximum to their 401(k) plan and are making full use of high-deductible health savings accounts as well.

As described in a CNBC article, the saver makes an after-tax nondeductible contribution to the Roth IRA that can be converted free of taxes. A caveat is that the backdoor Roth cannot be looked at in isolation from other IRAs that have pretax amounts contributed. In such situations, the IRS will use the pro rata rule in levying taxes on all of the IRA accounts. What this means is that the backdoor Roth must be carefully considered and may not be financially advisable when traditional, SIMPLE, and SEP IRAs have already been contributed to.