Now Is the Time: Converting a C Corporation to an S Corporation or LLC

August 6, 2012 Posted by Rick

This is a technical article, but it is worth scanning and discussing with your CPA.

  • Current historically low tax rates, scheduled to expire at the end of 2012, plus correspondingly low values for assets like real estate caused by the recession, make converting C corporations to passthrough entities especially attractive at this time.
  • C corporations are subject to double taxation, but methods of reducing corporate taxable income, such as increasing compensation to shareholder-employees, all have their own limitations.
  • One method is to elect to be taxed as an S corporation, eliminating double taxation without the need to liquidate the corporation, but it may not be a solution for all types of corporations, due to restrictive rules on corporate structures, classes of stock, types of permitted shareholders, and other limitations.
  • Converting from a C corporation to a limited liability company (LLC) can also eliminate double taxation; however, for federal tax purposes, it involves liquidating the corporation and can result in tax liability at the corporate and shareholder levels.

More here.

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