Lesson: Tax Implications of Forming a C Corporation

In this lesson, delve into the intricate details of forming a C Corporation with Nick Palazzolo, CPA. With a practical example involving three individuals—Alice, Bob, and Carol—who are creating ABC Corp, Nick breaks down their contributions of cash, property, and services and explains the tax implications for each. He clarifies when gains or losses are recognized, how the basis in stock is determined, and what happens when property is exchanged for stock under the control test. Particularly noteworthy is his elucidation of taxable income resulting from services exchanged for stock and the corresponding tax deduction for the corporation. This walkthrough includes analyses from both the contributors' and the corporation's viewpoints, giving a comprehensive understanding of the basis calculations and the effects of cash, property, and service contributions on ownership stakes in the new enterprise.