B Corporation
jo...@rstaxplus.com
Hello all!
I have a client, SMLLC filed with CA Sec of State a CONV LLC-GS (conversion from LLC to Stock Corporation), it was accepted/dated 5/15/2023.
The owner is asking me if there is any ‘tax benefits’ for being considered a B Corporation, indicating that is what she believed.
I never heard of a B-Corp till now.
My research indicates that status is just for recognition in business practices or what have you.
I have two questions, maybe 3:
Do I file part year SMLLC on Sch C and the rest of 2023 as a C-Corp?
To be considered an S-Corp they would have had to file for a 2553 election, so without that they are a C?
Do I do anything differently regarding this B Corp identity?
I appreciate any feedback 😊
Jodi
Lee Reams
Jodi,
Also, my first encounter with a B corporation. I used our TaxBuzz AI Co-Pilot which came up with the following which is some education for me as well. Hope I covered all the issues for you. Love our AI Co-Pilot, it would have taken at least a couple of hours of research to come up with what it did in 30 seconds.
Lee
BENEFIT CORPORATION - A, Benefit Corporation or B Corporation, is a type of for-profit corporate entity that includes positive impact on society, workers, the community, and the environment in addition to profit as its legally defined goals. While B Corporations are recognized in many states in the U.S., the designation itself does not inherently provide specific tax benefits at the federal level. Here are some key points to consider:
State-Level Benefits: Some states may offer specific incentives or benefits for B Corporations, such as reduced fees or grants for businesses that meet certain social or environmental criteria. However, these benefits vary widely by state.
Federal Tax Treatment: At the federal level, B Corporations are taxed the same way as traditional C Corporations or S Corporations, depending on their election. There are no special tax breaks or deductions specifically for B Corporations under federal tax law.
Public Perception and Market Benefits: While not a direct tax benefit, being a B Corporation can enhance a company's reputation, potentially leading to increased sales, customer loyalty, and the ability to attract and retain employees who are motivated by the company's mission. This can indirectly impact the financial health of the company.
Access to Certain Funding: Some investors and funds specifically seek out B Corporations or companies with strong social and environmental missions. This can provide access to capital that might not be available to traditional corporations.
Potential for Future Benefits: As the concept of social enterprise and corporate responsibility grows, there may be future legislative changes that provide tax incentives for B Corporations. However, this is speculative and not guaranteed.
CALIFORNIA - California does recognize Benefit Corporations (B Corporations), which are a type of for-profit corporate entity that includes positive impact on society, workers, the community, and the environment in addition to profit as its legally defined goals. However, the state does not provide specific tax benefits or incentives solely for being a B Corporation. Here are some key points about B Corporations in California:
Legal Structure: B Corporations are legally required to consider the impact of their decisions on all stakeholders, not just shareholders. This includes employees, customers, suppliers, community, and the environment.
Transparency and Accountability: B Corporations must publish an annual benefit report that assesses their overall social and environmental performance against a third-party standard. This report must be shared with shareholders and the public.
No Special Tax Benefits: While B Corporations have a unique legal status, they do not receive special tax benefits or incentives from the state of California. They are subject to the same tax rates and regulations as other for-profit corporations.
Reputation and Branding: Being a B Corporation can enhance a company's reputation and brand, potentially attracting customers, employees, and investors who are interested in supporting businesses that prioritize social and environmental responsibility.
Support and Resources: B Corporations may have access to a network of like-minded businesses and resources that can help them achieve their social and environmental goals.
YOUR OTHER QUESTIONS - Yes, your understanding is correct. Here’s a detailed breakdown of the steps and considerations:
Part-Year Filing for SMLLC and C Corporation: For the period from January 1, 2023, to May 14, 2023, the Single-Member LLC (SMLLC) would be treated as a disregarded entity for federal tax purposes. The income and expenses for this period should be reported on Schedule C (Form 1040) as part of the individual owner's tax return.
From May 15, 2023, onwards, the entity is treated as a corporation. Therefore, the corporation will need to file a corporate tax return (Form 1120) for the period from May 15, 2023, to December 31, 2023.
S Corporation Election: To be treated as an S Corporation, the corporation must file Form 2553, Election by a Small Business Corporation. This form must be filed no more than 2 months and 15 days after the beginning of the tax year the election is to take effect, or at any time during the tax year preceding the tax year it is to take effect.
Since the conversion date is May 15, 2023, the corporation would need to have filed Form 2553 by July 30, 2023, to be treated as an S Corporation for the remainder of 2023.
If Form 2553 was not filed within this timeframe, the corporation will be treated as a C Corporation by default.
Late S Corporation Election: If the corporation missed the deadline for filing Form 2553, it might still be possible to file a late election under Rev. Proc. 2013-30, provided certain conditions are met. This includes demonstrating reasonable cause for the late filing and ensuring that all shareholders have reported their income consistent with S Corporation status.
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jo...@rstaxplus.com
Lee,
I appreciate this so much. The AI tool is amazing and so thorough. Thank you for the quick response. You should take a day off every now and then 😊
Jodi
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Lee T Reams
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