Entity Selection and Business Formation Tax Planning

Categories: Federal Tax, IRS CE
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About Course

This two-hour continuing education course provides tax professionals with a practical, comparative framework for advising clients on business entity selection and the tax consequences of business formation. The course addresses the tax characteristics of sole proprietorships, partnerships, S corporations, and C corporations, giving enrolled agents and other tax return preparers the working knowledge needed to explain the tax tradeoffs among these structures to a client forming a new business or reconsidering an existing structure.

Participants examine self-employment tax exposure, the eligibility requirements and election mechanics for S corporation status, the double-taxation structure of C corporations together with the specific circumstances in which C corporation status can still be advantageous — including the qualified small business stock exclusion under IRC §1202 — and the qualified business income deduction under IRC §199A as it applies differently across entity structures. The course concludes with a practical comparative framework and the tax consequences of converting an existing entity from one structure to another.

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What Will You Learn?

  • Identify the tax characteristics of sole proprietorships and partnerships, including self-employment tax exposure and partnership basis rules
  • Apply the eligibility requirements and election procedures for S corporation status under Subchapter S
  • Identify the double-taxation mechanics of C corporations and the circumstances in which C corporation status may be advantageous
  • Apply the qualified business income deduction under IRC §199A across different entity structures
  • Compare the tax consequences of the major entity structures for purposes of advising a client on a new business formation
  • Apply the tax consequences of converting an existing entity from one structure to another

Course Content

Module 1 – Sole Proprietorships and Partnerships — Formation and Tax Fundamentals
This module covers self-employment tax under a sole proprietorship, the check-the-box entity classification regulations, the IRC §721 nonrecognition rule for partnership contributions and its exceptions, partnership basis and loss limitations, and the distinction between a distributive share allocation and a §707(c) guaranteed payment.

  • Sole Proprietorships and Partnerships — Formation and Tax Fundamentals

Module 2 – S Corporation Election, Eligibility, and Compliance
This module addresses the Subchapter S eligibility requirements, the Form 2553 election and relief for a late election under Rev. Proc. 2013-30, the reasonable compensation requirement for a shareholder-employee, shareholder basis and distribution ordering rules, the built-in gains tax for a converted corporation, and termination or revocation of an S election.

Module 3 – C Corporations — Double Taxation and Strategic Use
This module covers the flat 21% corporate tax rate, the mechanics of double taxation on distributed C corporation earnings, the accumulated earnings tax, the personal holding company tax, the qualified small business stock exclusion under IRC §1202, C corporation fringe benefit advantages, and IRC §1244 ordinary loss treatment.

Module 4 – Entity Selection Framework — Comparative Analysis and Conversion Planning
The final module brings the prior three modules together — the qualified business income deduction under IRC §199A across entity types, a comparative framework weighing self-employment tax, double taxation, and the QBI deduction, the tax-free incorporation rules under IRC §351, and the consequences of converting an entity from one structure to another.

Final Assessment – Entity Selection and Business Formation Tax Planning
You have completed a comprehensive review of business entity selection and formation tax planning, covering sole proprietorships and partnerships, S corporation election and compliance, C corporation double taxation, and a comparative entity-selection framework. You are now prepared to demonstrate your understanding of the key concepts. The following final examination assesses your knowledge of the material covered in all four modules. A passing score of 70% is required to successfully complete the course.

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