Liquidating dividend tax
Forming a C corporation was once the only way the owner of a small business could shield himself from the debts and liabilities of the company.Other forms of ownership, such as limited liability partnerships, have replaced the traditional C corporation structure for many small businesses.If you decide to change to another form of business organization, close your operations permanently or sell your business to another, you will likely need to liquidate the corporation.
Although it is possible to avoid a complete liquidation through joint ventures or parallel operations, the IRS might rule that the corporation has been constructively liquidated, resulting in additional tax.A limited liability company, or LLC, has significant tax advantages over a C corporation.A C corporation pays corporate income tax on its earnings, and then shareholders pay personal income tax on distributions.As of 2010, the federal tax rate for long-term capital gains was 15 percent, a rate favorable to those whose stock increased in value after purchase.Corporations, however, do not receive such favorable terms when selling assets. Cash paid to shareholders upon liquidation is also taxable.
Any taxable amount the investor receives is reported on Schedule D, the capital gains and losses statement that is filed with the IRS form 1040 during yearly tax filings.