Advanced Tax Planning for Corporate Transactions

July 21st 2016

Jack and Jill have a hillside widget manufacturing plant.  Widget manufacturing being a highly competitive industry (everyone seems to manufacture widgets) and prone to lawsuits, Jack and Jill incorporate their business on the advice of their attorney.  J&J, Inc. elects to be a C corporation, as the two shareholders zero out its income through salaries.  Over the years, the competitors of J&J, Inc. begin manufacturing real products, leaving J&J, Inc. the major player in the widget market.  J&J, Inc.’s net income quickly rises from $1 million to $100 million.

At that level of earnings the shareholders are no longer able to zero out the corporation’s net income and now find themselves subject to a corporate level tax.  What can they do now?

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