Why are income taxes not reflected in the financial statements for Craters & Freighters?
Craters_Freighters Franchise · 2025 FDDAnswer from 2025 FDD Document
nized in 2024 and 2023.
Income Taxes
The Company has elected to be taxed under the S-Corporation provisions of the Internal Revenue Code. No provision for income taxes is reflected in the financial statements since this is a personal liability of the shareholder.
Uncertain Tax Positions
The Company is a pass-through entity and any changes as the result of an examination by the IRS or the Colorado Department of Revenue would not have an impact at the entity level.
The Company has adopted FASB ASC 740-10-25, Accounting for Uncertainty in Income Taxes. The Company will record a liability for uncertain tax positions when it is more likely than not that a tax position would not be sustained if examined by the taxing authority. The Company continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and authoritative rulings.
Note 1: Summary of Significant Accounting Policies (Continued)
Uncertain Tax Positions (Continued)
The Company's evaluation on December 31, 2024 and 2023 revealed no uncertain tax positions that would have a material impact on the financial statements. The 2020 through 2023 tax years remain subject to examination by the IRS.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 49)
What This Means (2025 FDD)
According to Craters & Freighters' 2025 Franchise Disclosure Document, the company's financial statements do not reflect a provision for income taxes because of its S-Corporation election. As an S-Corporation, Craters & Freighters' income and expenses are passed through to its shareholder(s), making income taxes a personal liability of the shareholder(s) rather than a corporate liability. This means the shareholder(s) are responsible for reporting and paying income taxes on their share of the company's profits on their individual tax returns.
This structure is common for smaller businesses and franchises, as it avoids double taxation, which occurs when a corporation pays taxes on its profits, and then shareholders pay taxes again on dividends they receive. The S-Corporation election allows profits and losses to flow directly to the owners, who then report them on their personal income tax returns. This can simplify the tax process for the company and potentially reduce the overall tax burden on the business and its owners.
Because Craters & Freighters operates as a pass-through entity, any changes resulting from an IRS or Colorado Department of Revenue examination would not impact the company at the entity level. The FDD states that Craters & Freighters has adopted FASB ASC 740-10-25, Accounting for Uncertainty in Income Taxes, and will record a liability for uncertain tax positions if it is more likely than not that a tax position would not be sustained if examined by a taxing authority. As of December 31, 2024 and 2023, Craters & Freighters' evaluation revealed no uncertain tax positions that would have a material impact on the financial statements. The tax years from 2020 through 2023 remain subject to examination by the IRS, but the company does not anticipate any reasonably possible changes within the next twelve months that will materially impact the financial statements.