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Showing posts from March, 2007

The "Big Tax" for S corporation conversions

If your C corporation is thinking about electing S corp status, make sure you plan ahead or you may wind up owing a substantial tax on unrealized profits for the 10 years following the conversion.

The built-in gains (BIG) tax, which can be quite onerous, equals the highest corporate tax rate (currently 35 percent). If your firm is liable, the tax is paid at the corporate level and the gain is taxable again at the shareholder level.

The net built-in gain subject to tax during a year is limited to your firm’s taxable income for the year. You carry forward any excess to the next year.

College Tuition Deduction

College tuition deduction.

You might be able to deduct qualified higher education expenses of up to $2,000 or $4,000 (depending on your income) paid on behalf of yourself, your spouse, or a dependent. The write-off is taken as an adjustment to income, which means taxpayers can claim it even if they do not itemize deductions. It can be advantageous for those who earn too much to claim the HOPE or Lifetime Learning tax credits because the income limits are higher. Previously set to expire, the Tax Relief and Health Care Act of 2006 extends this deduction through December 31, 2007.