EBITDA is earnings before interest, tax, depreciation, and amortization. It is an important factor in valuing a business because it shows sort of the upper limit of what earnings can be with the current market.
The main way of valuing businesses is by the discounted cash flow of future earnings method. This looks at the EBITDA and projects its increase several years into the future. This is then discounted to account for the uncertainty of that scenario.
35.26 (.24 * (40 + 106.94) (150 - 40 - (40 * .0765))
*(§199A would take off 5.13)
Payroll Taxes
0
15.3 (100 * .153)
6.12 (40 * .153)
Total Taxes
46.5
43.195
36.252
Dividend is preferable, but the IRS will audit if you don't have enough salary.
Corporations may give more liability protection than single-member LLCs in some states.
Double tax can be avoided largely in closely-held C-corps by just paying out the money as salaries.
LLCs let owners change the rules. Corporations may be preferred because they have standard rules without needing to negotiate them. LLCs may be preferred to let minority shareholders negotiate rights.
Corporations are a controlled group if all corporations are owned at least 80% by a parent corporation (26 U.S.C. § 1563(a)(1)) or if pairs of two corporations are owned more than 50% by the same 5 or fewer people, but only including stock the extent identical between the corporations. (If Jim owns 10% of X and 40% of Y, only count 10%.)
Problem 3-G
X Corp
Y Corp
Z Corp
Jim
10%
40%
30%
Linda
80%
50%
25%
Sam
10%
55%
45%
X & Y: 10% + 5% + 10% = 25%
X & Z: 10% + 25% + 10% = 45%
Y & Z: 30% + 5% + 45% = 80%
Example of Contributing Property with More Nonrecourse Debt than Basis
If the value is $500, basis $250, and debt $400:
First, $150 (400-250) of debt is allocated to the contributor.
Then, the remaining debt is distributed the same as gain. (If equally, $62.5 (cuz (400-250)/4))