S corp to C corp change - Anything I should know?

[dinhthaihoang]

Next year my S corp will be revoking its S corp election and will become a C corp. I have never run a C corp before. Are there any big differences I should be aware of other than the 21% corporate income tax rate?

 

[godisalwaysgood]

@dinhthaihoang There are a lot.of small details. The big ones are that it must essentially act as it's own entity - no longer an extension of you.

So, you've got to have a board of directors. It could just be you, but you have to officially name them and meet quarterly.

You don't have the ability to easily shift around money the way you did as an S-corp. If you take money, it's either got to be a salary or a distribution, and you can't distribute unevenly to equity percentages.

As a standalone entity, it owns all tax losses. They no longer pass through to you personally.

There are other benefits (deductibility of more things on taxes, share classes, etc) that mostly make a difference if the Corp is starting to really make money.

 

[dinhthaihoang]

@godisalwaysgood Thanks, this information is helpful.

I am the only shareholder.

I calculated that the taxes I would owe with a C corp are almost exactly the same as I pay now with the S Corp, but without the headache of dealing with payroll (which is 20x more complicated because I am an expat) and worrying if the IRS will audit me for 'reasonable compensation'.

But, I heard that there is a chance that the corporate income tax rate will increase from 21% to 28%. Any idea on the chance of this happening or when it would take effect?

 

[godisalwaysgood]

@dinhthaihoang You can't base your decision on what might happen. There's always someone in government proposing increased tax rates. You'll get an ulcer thinking about it and 5 out of 7 times, it doesn't happen.

It's worth it to get a tax attorney / tax accountant when you're stating to make good prodits because their entire job is to recommend adjustments due to whatever tax law changes there are.

If you're growing and the C/S difference is negligible, it's always best to go C. You'll end up there with a successful company anyway.

 

[dinhthaihoang]

@godisalwaysgood I have a CPA who does my business and personal taxes. But they don't proactively look for potential tax savings or even bother to evaluate tax compliance. Maybe I need a new one.

 

[godisalwaysgood]

@dinhthaihoang Geberally speaking, most tax preparers - particularly CPAs - are more concerned that you are abiding by the rules than they are how much you pay.

To get the best benefit from tax laws, you've got to specifically get a tax accountant and/or tax attorney.

They aren't cheap, which is why few small businesses have them and all big businesses do. It's also why many small businesses pay a greater percentage in taxes than many big businesses.

 

[dinhthaihoang]

@godisalwaysgood How much do they cost?

 

[godisalwaysgood]

@dinhthaihoang Like all of these professionals, they aren't cheap (figure starting arounf $150/hr and well up from there). That being said, you're only using them for small bursts at a time.

 

[escapewoman]

@dinhthaihoang Don't know the exact situation, but it rarely saves taxes switching from an S-Corp to a C Corp. You have a lower business rate, but will be double taxed when you want that money personally.
If your CPA is not giving you this advice then find a new one. Do not switch your entity until you have specific professional advice this is not something you can do on a whim. For a real world example I just switched a C-Corp to an S and it took the effective tax rate on money they wanted out of the business from 35% to 16%.

 

[jccarlos26serra]

@escapewoman This right here!
This is the 1st time in my life, I’ve ever heard of someone switching from an S-Corp to a C-Corp.

 

[matthewck]

@dinhthaihoang Is there a reason you’re not asking a CPA about this? There are some considerable differences.

 

[dinhthaihoang]

@matthewck I think I need a new CPA. Mine is slow to reply and every time I ask him a question I feel like I am bothering him. Also he doesn't proactively look for tax savings or offer any guidance. He only does what I tell him to do but doesn't really give much advice.

 

[matthewck]

@dinhthaihoang Time to start interviewing my friend.

 

[dinhthaihoang]

@matthewck I agree but I'm not sure where to start. A big firm or an independent CPA?

 

[matthewck]

@dinhthaihoang For a one person company? Unless you have some crazy revenues I’d go Indy.

https://www.nytimes.com/2020/02/14/...ter/find-best-cpa-tax-accountant-near-me.html

Just heard about these guys:
https://paro.ai/

I found my best cpas by calling and scheduling short meetings with a half dozen prospects. No substitute for a sit down.

 

[dallastexan]

@dinhthaihoang If it was an LLC originally, get the documents completed, so you actually have ccorp documents.

 

[dinhthaihoang]

@dallastexan No originally an S Corp.

 

[huntemp28]

@dinhthaihoang Hey! Inkle.io does tax automation and book keeping for growing start-ups in the US. They're affordable and efficient - I would love to help you out. Send me a message or feel free to schedule some time here - https://calendly.com/kushagarwall/inkle-demo-1