Q:

Greetings,

First, thank you for the article, it is enlightening.  I understand your position and you may be to busy to answer my query but here it is.  I have quite a few folks telling me that it makes no sense that I open a C corp as I am a starter business that will not be amassing great income initially.  They tell me that S is the way to go and go to C if I start making the big bucks.

 

These folks own their own businesses and are quite successful.  If you can please advise as I am a novice myself,  I don't want to misstep as the first thing I do.

Thanks

A:

Unless one of those friends of yours who is advising you to be an S corp is a professional tax practitioner who has access to all of your personal tax and financial details, you should not base any real decisions on what they say.  Second hand tax advice from non tax pros is extremely dangerous.  If they are truly successful in their businesses, I'm sure they have tax pros to help guide them.  However, what may be suitable for their situations may be 180 degrees off the mark for yours.  It is really no different than having your friends diagnose your medical conditions and prescribe the appropriate medication based on what worked for them.

As I have explained on countless occasions, there are appropriate times and places for using both C and S corps.  Using an S just to pick up the first year losses, with profits expected in the subsequent years, is a very shortsighted approach to take because of the higher overall taxes on S corp profits.

Deciding which is best for you at this time is not something I can help you with.  You need to hire a tax pro who understands the pros and cons of using corporations to give you that kind of guidance.

Good luck.

Kerry Kerstetter

 

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 7/10/2005 06:47:00 PM Send this post: