Who is responsible for federal income taxes on Bevaris Alliance earnings?
Bevaris_Alliance Franchise · 2024 FDDAnswer from 2024 FDD Document
Income taxes. Federal income taxes are not payable by, or provided for, the Company. The member is taxed individually on their share of Company earnings. The Company has elected to be treated as a corporation and taxed under the provisions of Subchapter S of the Internal Revenue Code. Under those provisions, the Company does not pay federal corporate income taxes on its taxable income and is not allowed a net operating loss carryover or carryback as a deduction. Instead, the member includes their respective share of the Company's net income or loss in their individual income tax returns. Although the State of California follows Subchapter S of the Internal Revenue Code with respect to taxation of individuals on Company earnings, it also imposes a minimum tax of 1.5% on Company earnings.
Source: Item 23 — RECEIPT (FDD pages 22–88)
What This Means (2024 FDD)
According to the 2024 Bevaris Alliance Franchise Disclosure Document, the company itself does not pay federal income taxes. Instead, the member of the company is taxed individually on their share of the company's earnings. Bevaris Alliance has elected to be treated as a corporation and taxed under Subchapter S of the Internal Revenue Code, meaning it does not pay federal corporate income taxes on its taxable income and is not allowed a net operating loss carryover or carryback as a deduction.
This means that the individual who owns the membership interest in Bevaris Alliance will include their share of the company's net income or loss in their personal income tax returns. However, it's important to note that while the State of California follows Subchapter S for individual taxation on company earnings, it also imposes a minimum tax of 1.5% on the company's earnings.
For a prospective franchisee, this information is relevant because it clarifies that Bevaris Alliance operates under a specific tax structure where the profits and losses are passed through to the member's individual tax return for federal income tax purposes, while the company itself is subject to a minimum tax in California. Understanding this structure can help potential franchisees assess the financial implications of investing in a Bevaris Alliance franchise.