S Corporation and Small Company treatment of Shares

Are you a small business owner? There are many small business owners that take advantage of small company tax relief by using the S Corp designation for income taxation of their corporation. Simply put, the IRS allows a corporation to “pass through” all tax obligations of an S Corp to the owners on their individual tax return, avoiding the double taxation of first a Corporation and then the individual that receives dividends from their corporation.

If you own a corporation that has elected S Corp status, you and you die untimely, your trust cannot unless properly drafted, own S Corp stock. Therefore your heirs face a probate of your stock or the company. That is a waste of the purpose of drafting a trust. See this link (Overview).

Additionally if you do attempt to hold stock of an S Corp improperly in your trust, S Corp status may be denied, meaning your corporation will pay double taxes for all income, and your estate may be penalized for delay in payment of taxes by a beneficiary etc. Additionally many of your typical deductions are denied because they are intermingled with your estate and the company.

You should not rely on do it yourself trust forms or even ‘Cheap” alternatives when doing or reviewing your trust. S Corporation taxes and estate rules are very harsh if not handled properly and your trust needs to be specifically written to accommodate the S Corp status of your shares. An experienced attorney in trust matters can and will efficiently advise you on your alternatives. If you own S Corp Stock, consult with a professional trust drafter attorney. Call us. We can help you at 1 888 752-7474 or Contact Us online.