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Posted by Stuart A. Bronstein on March 27, 2008, 5:45 pm
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nearly_blind@yahoo.com wrote:
> Over the last 5 years we have accumulated a significant
> amount of retained earnings which has already been
> (corporate) taxed in prior years.
>
> My question is what is the most tax efficient method to
> distribute these funds to the share holders?
>
> 1) It seems we can just issue a "dividend" which
> would be taxed at a personal 15% rate
> (and have no tax effect on the corporation).
To me that seems like the best alternative.
> 2) It also seems theoretically possible to turn it into a long term
> capital gain by having the corporation buy shares back at a price/
> share such that the desired funds are distributed.
Actually that won't work. If everyone starts with and ends up with
about the same corporate interest, the IRS will consider it a
dividend in any case and not a redemption.
> Assuming 2) is kosher, it would probably not be worth the 1% tax
> rate savings because of the complication.
> However, there is a possilility that we may decide to close the
> business and cease operations in 2008. In that case it seems it
> would be clean for the corporation to buy back most of the shares
> before ceasing operation.
If the corporation buys back all of a shareholder's stock, then it
can qualify as a redemption and it's capital gain. Otherwise it is
unlikely to work.
Stu
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