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 This Week in the iNews:

▲ 2008 Tax Planning - S Corporations

▲ High Court Overturns Muni Bond Tax Ruling

▲ TECH TIP WEEKLY: Converting PowerPoint to Word

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▲ 2008 Tax Planning - S Corporations 

An S corporation is a pass-through entity that is treated very much like a partnership for federal income tax purposes. As a result, all income is passed through to the shareholders and taxed at their individual tax rates. However, unlike a C corporation, an S corporation's income is taxable to the shareholders when it is earned whether or not the corporation distributes the income. Because an S corporation has a unique tax structure that directly impacts shareholders, it is important for you to understand the S corporation distribution and loss limitations, as well as how and when items of income and expense are taxed, before developing your overall tax plan.

In addition, some S corporation income and expense items are subject to special rules and separate identification for tax purposes. Examples of separately stated items that could affect a shareholder's tax liability include charitable contributions, capital gains, Sec. 179 expense deductions, foreign taxes, and net income or loss related to rental real estate activities.

These items, as well as income and losses, are passed through to the shareholder on a pro rata basis, which means that the amount passed through to each shareholder is dependent upon that shareholder's stock ownership percentage. However, a shareholder's portion of the losses and deductions may only be used to offset income from other sources to the extent that the total does not exceed the basis of the shareholder's stock and the basis of any debt owed to the shareholder by the corporation. The S corporation losses and deductions are also subject to the passive-activity rules.

Other key points to consider when developing a comprehensive tax strategy include:

• the availability of the Code Sec. 179 deduction at the corporate and shareholder level;
• reporting requirements for the domestic production activities deduction;
• the tax treatment of fringe benefits;
• IRS scrutiny of distributions to shareholders who have not received compensation; and
• below-market loans between shareholders and S corporations.

We can assist you in identifying the potential tax savings. Please call your Prangley Marks professional if you want to maximize the tax savings available to S Corporation shareholders.

▲ High Court Overturns Muni Bond Tax Ruling

In a 7-2 vote, the U.S. Supreme Court ruled to uphold the tax exemptions that states and localities afford to their in-state municipal bonds.

 

The ruling by the High Court overturned an appellate court decision in Kentucky that stated that the practice discrimination against out of state bonds and were therefore was in violation of the Constitution.

 

Writing for the majority, Justice David Souter agreed that the states can give a tax break to purchasers of in-state bonds without violating the U.S. Constitution and that therefore it was not a case of unfair protectionism.

 

The case stems from a 2003 lawsuit, “Department of Revenue of Kentucky v. Davis”, in which a Kentucky couple sued the state government after it mandated that they pay state taxes on municipal bonds they held from other states.

 

Municipal bonds, which are often used to finance such projects as highways and schools, are estimated to be roughly a $2.5 trillion market.  

▲ TECH TIP WEEKLY: Converting PowerPoint to Word

Converting PowerPoint presentations to Microsoft Word documents is easy, and here are a few reasons to do so.

• To combine the presentation with more detailed content from elsewhere and create a report.
• To send a presentation-in-review document to your boss so that she can send it to her boss.
• To create training materials in Word from existing PowerPoint content.

To make the conversion happen, follow these steps:

1.   Open your PowerPoint presentation and choose File, Send To, Microsoft (Office) Word.

2.   Select a page layout.

If what you need isn't available, just choose the one closest to what you require; you can edit the layout later in Word.

3.   Select either the Paste or Paste Link option.

The Paste option creates thumbnails of the slides inside Word; the Paste Link option creates links to the actual slides. The Paste and Paste Link options are grayed out if you choose the Outline Only option.

4.   Click OK and PowerPoint turns on Word.

Word shows you a nicely formatted document that contains the slides or the outline.

In Word, Choose File, Save if everything looks good.