Is a provision or liability for federal income taxes included in the Gokhale Method's financial statements?
Gokhale_Method Franchise · 2024 FDDAnswer from 2024 FDD Document
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Income Taxes
The Company has elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code. Under those provisions, the net income or loss of the Company is allocated to the respective stockholders and included on their individual tax returns. Therefore, no provision or liability for federal income taxes has been included in the financial statements. The California annual tax for S corporations is the greater of 1.5% of the corporation's net income or $800, which is reflected in the current year expense as incurred. GMI files a consolidated tax return with Gokhale Method Enterprise, Inc.
The Company accounts for income taxes in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 740, Accounting for Income Taxes, which requires an asset and liability approach for accounting for income taxes. Deferred taxes are provided for accumulated temporary differences due to basis differences for assets and liabilities for financial reporting and income tax purposes. The Company did not have any temporary differences resulting in deferred tax assets or liabilities for the year ended December 31, 2023.
U.S. GAAP provide accounting and disclosure guidance about positions taken by an organization in its tax returns that might be uncertain. Management has considered its tax positions and believes that all of the positions taken by the Company in its State corporate tax returns are more likely than not to be sus
Source: Item 22 — CONTRACTS (FDD page 34)
What This Means (2024 FDD)
According to Gokhale Method's 2024 Franchise Disclosure Document, the company has elected to be taxed under Subchapter S of the Internal Revenue Code. Because of this election, the net income or loss is allocated to the individual stockholders and included on their personal tax returns. Therefore, the Gokhale Method's financial statements do not include a provision or liability for federal income taxes. Gokhale Method does, however, file a consolidated tax return with Gokhale Method Enterprise, Inc.
This means that the profits or losses of the Gokhale Method business directly impact the personal income taxes of the stockholders. Prospective franchisees should consult with a tax advisor to understand the implications of this structure for their individual tax situations.
The company accounts for income taxes according to the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 740, Accounting for Income Taxes, which uses an asset and liability approach. Deferred taxes are provided for accumulated temporary differences due to basis differences for assets and liabilities for financial reporting and income tax purposes. For the year ended December 31, 2023, the company did not have any temporary differences resulting in deferred tax assets or liabilities. The company also follows U.S. GAAP for uncertain tax positions and believes that all positions taken in their state corporate tax returns are likely to be sustained upon examination.
It is important for potential franchisees to understand how the S corporation election affects their tax obligations and to seek professional advice to ensure compliance with all applicable tax laws.