For federal and state income tax purposes, how was Cinch I.T. taxed in 2021?
Cinch_I_T Franchise · 2024 FDDAnswer from 2024 FDD Document
In 2021, the member elected, for federal and state income tax purposes, to be taxed as a small business corporation (S-Corporation). This election provides for the net income or loss of the Company to be reported on the personal federal and state income tax returns of the individual member. The Company pays no federal income tax on its profits and receives no income tax benefit from its losses. The Company is taxed at the corporate level for state income tax purposes, in those states where it has nexus, in accordance with applicable current state tax laws.
As of December 31, 2022, the Company's income tax returns are subject to potential examination by taxing authorities for the years ended December 31, 2021 and 2022.
Source: Item 23 — RECEIPTS (FDD pages 60–269)
What This Means (2024 FDD)
According to Cinch I.T.'s 2024 Franchise Disclosure Document, in 2021, the company's stockholder elected to be taxed as a small business corporation (S-Corporation) for both federal and state income tax purposes. This means that the net income or loss of Cinch I.T. was reported on the personal federal and state income tax returns of the individual member. As a result, Cinch I.T. itself paid no federal income tax on its profits and received no federal income tax benefit from its losses.
However, there is an exception to this arrangement. The document states that in years when Cinch I.T.'s revenue exceeds 56 million, the company is taxed at the corporate level for state income tax purposes. When the company's revenue is below 56 million, Cinch I.T. pays no state income tax on its profits and receives no income tax benefit from its losses.
Finally, the FDD notes that Cinch I.T.'s income tax returns for the year ended December 31, 2021, were subject to potential examination by taxing authorities as of December 31, 2022.