C Corp vs S Corp

Discussion in 'Business Operations' started by Bman, Jan 23, 2002.

  1. Bman

    Bman LawnSite Member
    Messages: 4

    I've been operating as a C corporation for six months and my accountant recommended that I switch to an S corporation to get a larger tax return. Anyone have any experience with this? I'm leaning in that direction because he is the tax pro.

    Troy Bman
  2. bruces

    bruces LawnSite Senior Member
    Messages: 648

    Look at the big picture (not just this year). You can't switch back and forth from C to S more than once every 5 years (generally). I would assume that your accountant, knowing your situation has it figured out that it will be best for you.

    Ask him or her to explain the savings (why is one better than the other) and how much you will save at various levels of income.

    This will take him a little time and cost you a little money, but will force you to make an informed decision, rather than "an S corporation is better".

    Make sure he knows what you expect the business will do in coming years and what your plans are.
  3. Stonehenge

    Stonehenge LawnSite Bronze Member
    from Midwest
    Messages: 1,276

    Explaining the tax implications to the best of my ability,

    A C-Corp acts like a person in itself - it earns money, and has to pay taxes on it. It then pays you, and you must also pay taxes on that $$. So you're being double-taxed.

    An S-Corp funnels all financials through you, so taxation only occurs once. If the biz makes money, it is considered that you made that money, and will have to pay taxes on it.

    It's more complicated than that, but that's my best crack at it. We're an S-corp.
  4. Kent Lawns

    Kent Lawns LawnSite Senior Member
    from Midwest
    Messages: 870

    That's about right.

    The S corp profits will be transferred directly on your personal return. The corporation pays no taxes. You can't take an INCOME loss from a C corp either.

    A C corp pays taxes on profits, but generally keeps the profits IN the company as retained earnings. IF you pay our those profits as divdends, you have to pay taxes on those dividends and are essentially double-taxed.

    Anyway, I would heed your CPAs advise, the sub chapter S election is generally a simpler and less costly way to go for smaller, independently owned companies.

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