Small Business

As a CPA, I came across this website and joined just last week, and I just came across your question.

Unfortunately, no, you will not be able to avoid the tax on capital gains. As you know, as long as you own the stock, you don’t pay any tax on unrealized gains. When you sell stock, you realize gains and pay tax. There is not an exception to that rule, just because you’re using the proceeds to purchase assets for a business.

Trying to think outside the box, even if you could contribute the stock to a business of yours and manage to get tax-free treatment on the contribution of the stock to the business, you’d still run into the same problem when the business tried to sell the stock to get the money to purchase assets. In that case, the business would have to either pay tax itself (at its marginal tax rate) on the capital gains or pass the gains to you and you’d have to pay the tax (depending on how the business was structured for federal income tax purposes).

It’s great that you’re trying to be proactive and find a way to save taxes, but I don’t think it’s a go this time.

Even though you cannot avoid the tax on the capital gains, you should consider depreciation on the assets your purchase for the business. That might help offset some of the tax on your gains. Just a thought.

I wish you the best in your endeavors.

As a CPA, I came across this website and joined just last week, and I just came across your question.

If you are limiting your choices to either a dba or an LLC, then I would recommend an LLC, for three reasons.

First, an LLC gives you some legal liability protection if you are ever sued. A dba does not give you any legal liability protection.

Second, from a tax perspective, both a dba and an LLC would be taxed the same (for federal income tax purposes), assuming that you did not make any election to treat the LLC differently. However, having an LLC gives you the option to elect to treat the company as an S corporation. You don’t have that optionality with a dba. Keep in mind that making the S election for the LLC would require that you file a separate federal income tax return for the business each year. However, the tax savings that an S corporation election can afford could make it worthwhile, especially because it sounds like you intend to grow the business.

Finally, the LLC probably gives your business a little more legitimacy and professionalism, in the public’s eye.

Consider that you could choose the LLC and have the LLC get the dba – the best of both worlds. So you don’t necessarily have to treat this decision as one where you must choose one or the other.

I congratulate you on planning for the future. If you wish to engage me to help, please feel free to reach out to me.

As a CPA, I came across this website and joined just last week, and I just came across your question.

Unfortunately, yes, you need to file a Form 1120S, which will include the Schedules K and K-1 for 2020. S corporations must file a return every year, whether or not there is any activity. Don’t forget about any state return, such as a state income tax return, franchise return, or annual report. Feel free to contact me if you wish to engage me to help.