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.
