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Megan C
Megan C , Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 16539
Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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I have a C-corp client on accrual basis with small inventory,

Resolved Question:

I have a C-corp client on accrual basis with small inventory, A/R and A/P. We are thinking of converting to an S- Corp. Can someone tell me if there would be any drawbacks? What about BIG tax? Thanks!
Submitted: 2 years ago.
Category: Finance
Expert:  Megan C replied 2 years ago.

Megan C :

Thank you for your question. My name is XXXXX XXXXX I will be happy to help you today.

Megan C :

The tax implications of the switch would include paying tax on the built in gains (BIG) of the C Corp's assets

Megan C :

If there are NOLs, they would be lost as gains and losses go to the shareholder directly and not through the corp itself

Megan C :

If the corporation's inventories were being valued according to the LIFO method, tax must be paid on the benefits from using that method when switching to S corporation status.

Customer:

Only on appreciated assets correct? I dont think we have any as we do not have real estate or investments. Our inventory is on the fifo method...

Megan C :

Okay then you should be fine. It's when there's a large amount of fixed assets when the BIG really takes off

Megan C :

Depreciated real estate or machinery - things like that

Customer:

we do have machinery... so that would be our main concern... but only if we sold any of it within the next 10 years correct?

Megan C :

That is correct.

Customer:

the C corp has a fiscal year end of 9/30... how do I handle that?

Megan C :

You would have a short year of 10/1 to 12/31 for the new company

Megan C :

Or the S corp

Customer:

ok... so I should file my 9/30/13 return as C-corp.. convert as of 10/1/13 and file a 12/31/13 short year return?

Megan C :

Yes, that would be correct

Customer:

and then just file the 2553

Megan C :

Is there anything else I can help you with today? If not, please rate positively - that's the only way I receive credit for assisting today

Customer:

what do you specialize in for future refernce?

Megan C :

Tax, finance, and social security

Customer:

Great! THanks!

Megan C :

You're welcome!

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