Tax reporting liquidating trust


06-Nov-2017 05:54

Equity incentives are an important form of compensation in many types of businesses and are especially important at the start-up phase when only limited funds may be available to pay cash compensation.Entrepreneurs familiar with the corporate form of business likely have received equity incentives themselves, possibly in the form of restricted stock, stock options or stock appreciation rights (SARs).

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Absent further guidance, the sale of S corporation stock, even by a shareholder who materially participates in the business, would appear to be subject to the tax. Section 1411(c)(4) states that, in the case of a disposition of an interest in a partnership or S corporation, gain is taken into account for purposes of the tax only to the extent of the net gain that would be taken into account if all property of the partnership or S corporation were sold for fair market value immediately before the disposition of such interest.

Or if eligible, you might opt for a Roth IRA and contribute after-tax money in exchange for tax-free distributions down the road. If you run afoul of some of the IRS rules surrounding these accounts, the penalties can be quite stiff—all the way up to a disqualification and taxation of your entire account if you're not careful.

(For more details on which account might be best for you, see: and Saving for Retirement: IRA vs. Ignorance of the law is no excuse, and with very few exceptions the IRS isn't forgiving of mistakes.

331 when they receive the liquidation proceeds in exchange for their stock.

If the corporation distributes its assets for later sale by the shareholders, the assets generally “come out” of the corporation with a basis equal to FMV (and with the related recognition of gain or loss under Sec.Individual Retirement Arrangements (IRAs) can be a great way to save for retirement because of the tax benefits they may provide.