Fitness Workout, Inc, is a small business. Siblings Grady andHeidi, and nine other members of their family, own all of its stock. Currently, the firm's income is taxed at the corporate level and, after being distributed to the family members, at the shareholder level. Can Fitness Workoutretain its corporate status but oth¬er¬wise avoid this double taxation? If so, how?
Fitness Workoutcan re-form as an S corporation to avoid this dou¬ble income-taxation.
S corporations were created specifi¬cally to permit small businesses to avoid this sort of taxa¬tion. Any small business that meets certain re¬quire¬ments can qualify. The requirements are (1) the firm must be a domestic corporation, (2) the firm must not be a member of an affili¬ated group of corporations, (3) the firm must have less than a certain number of share¬holders, (4) the shareholders must be individu¬als, es¬tates, or qualified trusts (or corporations in some cases), (5) there can be only one class of stock, and (6) no shareholder can be a nonresi¬dent alien.
Based on the facts presented in this question, it would appear that Fitness Workoutwould qualify.
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