C Corp To S Corp Conversion Tax Consequences
Description
How to fill out Agreement And Plan Of Merger For Conversion Of Corporation Into Maryland Real Estate Investment Trust?
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FAQ
If your C corporation has unused net operating losses, the losses can't be used to offset its income as an S corporation and can't be passed through to shareholders.
The most obvious change when converting a C-Corporation to an S-Corporation or to a Partnership is that the company's owners can avoid double taxation of earnings. Depending on the corporation's earnings and its shareholders' tax brackets, this can result in significant savings.
That means that your practice income passes through you as the owner of your S corporation. You don't have to pay separate taxes on your business. The owner then pays the taxes on the income.
An S corp's inherited passive income can be subject to tax. After conversion from a C corp, an S corporation can inherit income such as rent, interest, retained earnings, funds derived from stock sales, etc. Passive income that makes up more than 25% of an S corp's gross income is subject to tax.
Although S corporations generally aren't subject to tax, those that were formerly C corporations are taxed on built-in gains (such as appreciated property) that the C corporation has when the S election becomes effective, if those gains are recognized within 5 years after the corporation becomes an S corporation.