Why is there no provision for income tax in the financial statements for Burneys Sweets More?
Burneys_Sweets_More Franchise · 2025 FDDAnswer from 2025 FDD Document
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DMG Burney, Inc. is a North Carolina corporation that elected to be treated as an S-corporation for federal and state income tax purposes. Under existing provisions of the Internal Revenue Code, the income or loss of an S-corporation is recognized by the shareholders for income tax purposes. Accordingly, no provision for income tax has been provided for in the accompanying financial statements.
DMG Burney, Inc. elected to pay a newly imposed North Carolina Pass-Through Entity Tax ("PTE Tax") on behalf of the shareholders. This tax is assessed at the individual income tax rate on its taxable income and is applied to reduce each shareholder's proportionate share of federal taxable income reportable on the shareholder's personal income tax return. Accordingly, each shareholder recognizes a federal income tax benefit as if the shareholder's state income tax were fully deductible on the shareholder's personal federal income tax return. Since the income tax benefits associated with the PTE Tax exclusively benefit the shareholders, each shareholder's proportionate share of the tax is recognized as a distribution to that shareholder. Each of the shareholder's distributions include $7,020 representing that shareholder's share of the PTE Tax paid on their behalf for the year ended December
Source: Item 23 — RECEIPT (FDD pages 50–199)
What This Means (2025 FDD)
According to the 2025 FDD, the financial statements for Burneys Sweets More, specifically DMG Burney, Inc., do not include a provision for income tax because DMG Burney, Inc. has elected to be treated as an S-corporation for federal and state income tax purposes. As an S-corporation, the income or loss is recognized by the shareholders for income tax purposes rather than being taxed at the corporate level. This means the shareholders report the income or loss on their individual income tax returns.
This structure is a common tax strategy for small businesses as it avoids double taxation, which occurs when a corporation's income is taxed at the corporate level and then again when profits are distributed to shareholders. Instead, the shareholders of Burneys Sweets More pay taxes on their share of the company's income at their individual income tax rates.
It's important to note that while the company itself does not pay income tax, certain transactions of the company may be subject to accounting methods for income tax purposes that differ significantly from the accounting methods used in preparing the financial statements. This could lead to differences between the company's taxable income and its net income as reported in the financial statements. Additionally, DMG Burney, Inc. elected to pay a newly imposed North Carolina Pass-Through Entity Tax (PTE Tax) on behalf of the shareholders. For example, each of the shareholder's distributions include $7,020 representing that shareholder's share of the PTE Tax paid on their behalf for the year ended December 31, 2024. This tax is assessed at the individual income tax rate on its taxable income and is applied to reduce each shareholder's proportionate share of federal taxable income reportable on the shareholder's personal income tax return.