It has long been established that distributions from corporations are taxable to New Hampshire resident shareholders through the Interest and Dividends (“I&D”) tax. These distributions are also taxable for federal income tax purposes unless the company elected to be taxed as an “S” Corporation for federal tax purposes. The problem is New Hampshire does not recognize the federal “S” election so even distributions from these corporations would subject the New Hampshire shareholder to the I&D tax.
Thanks to a recent ruling from the New Hampshire Department of Revenue Administration (“DRA”), a relatively simple but carefully crafted reorganization can render those distributions non-taxable. This reorganization involves essentially a three step process that converts your existing corporation to an LLC under state law and then a couple of tax elections. Your current tax ID number would remain in place as do other tax aspects of your business. This process should also qualify as tax free for federal purposes. At the end, your company would be XYZ LLC instead of XYZ, Inc. This restructuring could also be used for certain “C” corporations as well.
Obviously, because of the legal and unique tax characteristics of your business, you would want to employ the advice and counsel of a qualified CPA and attorney to help you through this process.
Please contact one of our tax advisors with any questions you may have.