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Convert S Corp To C?
Q:
Subject: converting an S corp question
Dear Mr. Kerstetter,Thank you very much for your article. It is very helpful. I have a question and wondered if you'd be kind enough to answer.I started out with a C corp, and later our accountant suggested I change it to an S corp, which we did. It was stupid but I felt intimidated and asked the accountant why it be to our advantage, and he assured me it would becasue of the "double taxation". Now I realize we might be screwed since I can't change it back to a fiscal year ending in the middle of the year.Is there anyway I can say my accountant advised me wrongly and change it back to the way I had it in the first place?And if I can't, this is our company that is now just starting to take off. Does that mean I have to change the name? Or is there anyway I can keep the name the same and change it back to a C corp?Thank you very much,
A:
It sounds like the first step you need to do is to find a tax pro who isn't one of the many who believe that S corps are a one size fits all solution for everyone, as yours seems to be.
As I've written on many occasions, switching from a calendar to a fiscal year for your corp is pretty much an impossible dream, even if you try to use the excuse that you were misled by a shortsighted accountant. IRS isn't in the business of helping you save money on taxes and will consider your experience with your current tax advisor to be your own fault.
Once you have a new tax pro, you and s/he need to see if a C corp really would be in your best interest. If so, it will probably be most efficient to just set up a brand new C corp for which you can use any fiscal year you want.
Then, you and your tax pro should look at whether you need to keep the existing S corp or dissolve it. Depending on what kinds of businesses you are operating, as well as several other factors, there are plenty of very legitimate reasons for having both a C and an S corp. I have seen this work out quite well for many people; especially if there are opportunities to shift income between a taxable and non-taxable state.
Good luck.
Kerry Kerstetter
- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 2/21/2007 11:59:00 AM Send this post:
