Corporate income tax

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In general, the creditors of a corporation cannot recover the corporation’s debts from its shareholders—the shareholders enjoy the benefit of limited liability protection as a matter of state law. Among the corporate liabilities from which shareholders are usually shielded is the Federal income tax imposed on a corporation’s taxable income.

There are a number of exceptions to this general rule, however – some of which are better known than others – including the ones described below.
Continue Reading Shareholder Liability For Corporate Income Tax?

A business entity that is treated as a “flow-through” for income tax purposes enjoys the benefit of a single level of tax – the entity itself is typically not subject to tax on its net income; rather, that income “flows through” to the entity’s owners, who then report it on their own income tax returns. This flow-through treatment occurs whether or not the entity has made a distribution to its owners. For that reason, partnership/LLC agreements and “S” corporation shareholder agreements often provide for so-called “tax distributions,” meaning that the entity will distribute, on an annual or quarterly basis, enough cash to enable its owners to satisfy their income tax liabilities attributable to their share of the entity’s income that is flowed-through to them.
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