Considering converting your C Corporation into an S Corporation? There are many tax advantages to converting from a C Corporation into an S Corporation under the current tax laws, but the conversion does not always make sense for every business. One of the primary motivations to make the conversion, is to avoid double taxation. Under the C Corporation designation, profits are taxed first as corporate profits and again as dividends distributed to shareholders. As an S Corporation, you can pass corporate profits through to yourself and other shareholders to only be taxed once as personal income.
Corporations must meet certain criteria to make the S election, and long-term business plans and valuation of the entity could factor into the decision to make the conversion. There are also other potential tax consequences that can be disadvantageous to the Corporation if not considered or planned for prior to making the switch.
The decision to change from a C Corporation to and S corporation requires careful analysis and the aide of an expert. If you are thinking about a conversion, contact a professional CPA firm, such as Bumpers & Company, to assist you with your decision process, including a business valuation and plan of action.