Tax implications liquidating corporation

After spending six years working for a large investment bank and an accounting firm, Marz is now self-employed as a consultant, focusing on complex estate and gift tax compliance and planning.Forming a C corporation was once the only way the owner of a small business could shield himself from the debts and liabilities of the company.However, loss on depreciated property is also recognized.Any gains are then taxable to the shareholders, less the shareholder's basis or investment in stock.If the shares were purchased from a previous shareholder, your tax basis is the amount you paid.

If you decide to change to another form of business organization, close your operations permanently or sell your business to another, you will likely need to liquidate the corporation.This means that you may have a gain or loss to report on your return.Gains and losses are calculated as the difference between your tax basis in the stock exchanged and the overall fair market value of the distribution you receive, which is treated as the gross proceeds of the deemed stock sale.When you assume corporate liabilities or receive property with an outstanding debt balance, you reduce the gross proceeds by the total amount of debt included in your liquidating distribution.For example, suppose your distribution includes ,000 in cash and a company vehicle worth ,000 for which the corporation still owes ,000.