Compliance with ever-changing federal, state and local tax regulations can be a challenge for organizations.
Tax implications for the owners of an organization as well as the organization itself arise from which type of business structure is selected and established. Whether a company is publicly or privately held, its owners can range from an individual to a large number of shareholders.
A thorough understanding of how the business structure relates to its operations is necessary in order to select the most beneficial entity type. Other considerations are involved as well, but the taxing of its products or services and the taxation on the distributions of cash and property each contribute to the complexity of corporate taxation.
In addition to the business entity choice, corporations also must declare their jurisdictions by registering as a corporation within a specific state. As the U.S. Small Business Administration explains, where a company is incorporated affects the cost of incorporating, the filing of tax returns and the settlement of potential disputes.
Change Is Constant
Business liquidations, reorganizations and mergers all affect the tax disposition of an organization, and having a firm understanding of the implications of those changes is necessary to make business decisions that optimize profit while complying with the requirements imposed by tax and industry authorities.
How businesses combine can have various financial and tax-reporting implications. In a merger with a brick-and-mortar retail store chain, an online business may be subject to sales tax collection requirements in a standard corporate merger situation. Structuring the business combination differently could preserve the current reporting and collection requirements.
Business executives must understand the tax treatment of net operating losses if and when such losses happen. Recording, deferring and applying prior business losses affects not only the business owners but also the entities.
Two Sets of Books?
In a 2015 article titled “Startup Costs: Book vs. Tax Treatment,” the Journal of Accountancy presents additional tax complications that businesses need to consider. Documenting startup costs for financial statements requires one level of treatment; however, when startup costs are recorded for taxation purposes, they must be further sub-divided in order to separate the costs into the correct taxation rates, categories and, where appropriate, depreciation schedules.
As the article notes, tax considerations for entities include intangibles, deferred organization costs and varying depreciation schedules, depending upon the items purchased.
Impact and Resources
Due to the ever-changing nature of tax law, corporate tax specialists need to be adept at researching and interpreting those laws. These tax professionals must supplement their study of Internal Revenue Service statutes by gaining a knowledge base of resources that will allow the exploration of litigation results and audit findings, while staying on the cusp of potential regulations that Congress may enact.
Corporate accounting professionals must have the expertise to calculate tax with precision. An in-depth study of corporate taxation enables today’s MBA students to gain the knowledge required for analysis and execution of corporate tax policy.
Learn more about the UWF online MBA in Accounting program.
U.S. Small Business Administration — Choose Your Business Structure
Journal of Accountancy — Startup Costs: Book vs. Tax Treatment