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Wallstreet Esq.
Wallstreet Esq., Tax Attorney
Category: Tax
Satisfied Customers: 585
Experience:  10 years experience
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There are many advantages and disadvantages to converting a

Customer Question

There are many advantages and disadvantages to converting a C-Corp to an S-Corp, but in a situation where an individual who owns a C-Corp with profits and subject to double taxation, it seems odd that they have not changed to an LLC, or switched to a Sub-S. But, when an individual that owns multiple C-Corps is contemplating forming a Holding Company in the next year, the exercise to switch to an Sub-S now does not seem practical, except to reduce overall taxes during the current year. Is there a better option to reduce current year taxes when the ultimate goal is to bring all the companies together under one holding company.
Submitted: 11 months ago.
Category: Tax
Expert:  Mark Taylor replied 11 months ago.

Hi my name is***** would be happy to help with your question.

Expert:  Mark Taylor replied 11 months ago.

So right now the structure is C-Corporations involving different businesses?

Customer: replied 11 months ago.
Just same owner. Two generate excess profits and cash. One with losses and NOL's.
Expert:  Mark Taylor replied 11 months ago.

If this is the same owner right now you have what is known as a controlled group. Where all the C-Corps should be taxed as on entity. This is if there is the same ownership in each of the different companies.

Expert:  Mark Taylor replied 11 months ago.

Assuming that it is not a controlled group if you convert the entity with the NOL you would lose that benefit.

Expert:  Mark Taylor replied 11 months ago.

Is there any real property in the C-Corporation. If there is you would have to be concerned with BIG (Built in Gains tax). The built in gains tax would only apply if you sold the property with 10 years of the conversion.

Expert:  Mark Taylor replied 11 months ago.

If the C-Corporations have retained earnings, these earnings would still be taxable when distributed to the shareholders. The S-Corporation would have some discretion on when this is done.

Expert:  Mark Taylor replied 11 months ago.

You would not be able to change to an LLC. You would only be able to convert to a S-Corporation. If you want an LLC, this would need to be newly formed.

Expert:  Mark Taylor replied 11 months ago.

There are a few ways to avoid the double taxation. One of these is threw salaries and bonuses. This may be an option instead of converting to an S-Corp.

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