Reasons for Converting from S Corp to C Corp
To begin the conversion process, more than 50% of the corporate shareholders must vote to make a Subchapter S election. The S corporation board must then vote to approve the decision to convert to a C corporation.
One of the more common reasons for converting is the failure of an S corporation to meet the IRS requirements. C corporations tend to have less IRS audit risks.
Benefits of Switching from S Corp to C Corp
The primary difference between an S corp and a C corp is the manner in which they are taxed by the IRS. With an S corp, the profits and losses flow through to the shareholder. Shareholders can claim it on their personal tax return.
Why C Corp is Better than S Corp
The main advantages include access to net operating losses: C corporations facing losses one year can deduct them from future years’ profits.
Conclusion
In the end, converting from an S Corp to a C Corp is a decision that can have benefits but also long-term implications. It is always recommended to speak with a financial professional before changing the tax status of your company.
Each type of corporation has its own benefits and drawbacks, as well as differences when it comes to taxes. The decision between C Corp and S Corp classification for a company can significantly impact its future, growth, and investor base.