Spring 2012 issue of Horizons

Life Sciences - continued

Entity Structure Tax Considerations

Issue/Entity

Sole Proprietorship Partnership

LLC

S Corporation

C Corporation

Required Tax Elections

None

None

None

Yes

None

Ability to Select Tax Year

Calendar year, unless a substantial business purpose supports a fiscal year end.

Calendar year, unless a business purpose supports a fiscal year end.

Limited

Limited, unless a service corporation business purpose supports a fiscal year end. Poor, if own more than 2% of stock Flows through to individual tax return, whether taken or not, based on proportionate ownership interest. Deductible, subject to legal limitations (such as owner’s basis).

No restrictions

Tax treatment of fringe benefits for owners

Poor

Poor

Poor

Good

Tax on Income

Taxed to owner

Flows through to individual tax return, whether taken or not.

Flows through to individual tax return, whether taken or not.

Corporate tax rates, shareholders also taxed on dividends.

Operating Losses

Deductible

Deductible

Deductible

Generally carried back two years and forward twenty years.

Passive Loss Rules Apply

Yes

Yes, at partner level. Treatment of limited partners is unfavorable.

Yes, at member level. Unclear if members treated as limited partners.

Yes, at shareholder level. Generally no.

Favorable Tax Rate on Long- term Capital Gains

Yes

Yes

Yes

Yes

Yes

Many of the tax considerations may seem to be of little importance to a startup; however, as the business evolves, significant dollars may be at stake, particularly upon an exit. You should consult your tax advisor for further guidance.

Information gleaned from: Nolan & Associates

RubinBrown’s Life Sciences Services Group RubinBrown provides specialized accounting services to life sciences, renewable energy, pharmaceutical, and medical device companies across the country.

Steve Hays, CPA - St. Louis Partner-In-Charge Life Sciences Services Group steve.hays@rubinbrown.com 314.290.3336

Dan Raskas, CM&AA – St. Louis Vice Chair Life Sciences Services Group dan.raskas@rubinbrown.com 314.678.3530

Raise Your Expectations

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