Stacey Small has a small salon that she has run for a few years as a sole proprietorship. The...

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Stacey Small has a small salon that she has run for a few years as a sole proprietorship. The proprietorship uses the cash method of accounting and the calendar year as its tax year.

David · Accepted Answer

Memorandum to the File
Memorandum to the File
Date:  April 15, 2016
From:  Jeffrey D. Cole, CPA
Re:  Tax Consequences of Incorporating
Facts
The following facts are known and relevant to the taxpayer Stacey Small. The taxpayer has a small salon that she has run for a few years as a sole proprietorship. The proprietorship uses the cash method of accounting and the calendar year as its tax year. The taxpayer is seeking additional capital for expansion and knows two people who might be interested in investing. One would like to practice hairdressing in the salon. The other would only invest. Her business assets include a building, equipment, accounts receivable and cash. Liabilities include a mortgage on the building and a few accounts payable, which are deductible when paid.
Issues
The type of corporation best for the taxpayer, S Corporation or C Corporation, is a matter of judgment on part of the taxpayer.  The S Corporation would require taxation at the individual stockholder after pass through of profits.

Stacey Small has a small salon that she has run for a few years as a sole proprietorship. The proprietorship uses the cash method of accounting and the calendar year as its tax year.

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