Spring 2012 issue of Horizons
Life Sciences - continued
Entity Structure Tax Considerations
Issue/Entity
Sole Proprietorship Partnership
LLC
S Corporation
C Corporation
Required Tax Elections
None
None
None
Yes
None
Ability to Select Tax Year
Calendar year, unless a substantial business purpose supports a fiscal year end.
Calendar year, unless a business purpose supports a fiscal year end.
Limited
Limited, unless a service corporation business purpose supports a fiscal year end. Poor, if own more than 2% of stock Flows through to individual tax return, whether taken or not, based on proportionate ownership interest. Deductible, subject to legal limitations (such as owner’s basis).
No restrictions
Tax treatment of fringe benefits for owners
Poor
Poor
Poor
Good
Tax on Income
Taxed to owner
Flows through to individual tax return, whether taken or not.
Flows through to individual tax return, whether taken or not.
Corporate tax rates, shareholders also taxed on dividends.
Operating Losses
Deductible
Deductible
Deductible
Generally carried back two years and forward twenty years.
Passive Loss Rules Apply
Yes
Yes, at partner level. Treatment of limited partners is unfavorable.
Yes, at member level. Unclear if members treated as limited partners.
Yes, at shareholder level. Generally no.
Favorable Tax Rate on Long- term Capital Gains
Yes
Yes
Yes
Yes
Yes
Many of the tax considerations may seem to be of little importance to a startup; however, as the business evolves, significant dollars may be at stake, particularly upon an exit. You should consult your tax advisor for further guidance.
Information gleaned from: Nolan & Associates
RubinBrown’s Life Sciences Services Group RubinBrown provides specialized accounting services to life sciences, renewable energy, pharmaceutical, and medical device companies across the country.
Steve Hays, CPA - St. Louis Partner-In-Charge Life Sciences Services Group steve.hays@rubinbrown.com 314.290.3336
Dan Raskas, CM&AA – St. Louis Vice Chair Life Sciences Services Group dan.raskas@rubinbrown.com 314.678.3530
Raise Your Expectations
33
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