If You’re Thinking of Switching from an S to C Corporation for Tax Benefits, You Should Consult an Experienced Business Formation Attorney First
If You’re Thinking of Switching from an S to C Corporation for Tax Benefits, You Should Consult an Experienced Business Formation Attorney First Jun 4, 2019 As attorneys who regularly practice in business formation here in Florida, one recent question we have received is whether an S corporation should switch to a C corporation after the passage of the Tax Cuts and Jobs Act, and whether there is a corresponding ability for C corporations to exclude any gain from the sale of stock held for more than five years. Below, we discuss this possibility under section 1202 and the potential to gain a huge tax break by switching to a C corporation. In a nutshell, there is some inconsistency within the statutory language which makes how you convert from an S to a C corporation very important in this process. What Section 1202 Does & Qualified Small Business Stock Section 1202 allows for shareholders who acquire qualified small business stock after September 2010 and hold onto it for five years to sell that stock and exclude it as declared income the greater of $10 million or 10 times the shareholder’s basis in the stock. However, there are a number of requirements that must be met in order for stock to qualify as qualified small business stock; requirements that sometimes confuse even the best tax advisers, attorneys, and shareholders alike. In a nutshell, in order for stock to qualify as qualified small business stock it must; Be issued while the corporation is already a C corporation; Have been acquired at original issuance; Be linked to the corporation whose total assets are less than $50 million starting from the date of that company’s formation up to the shareholder acquiring the stock; and Be linked to a corporation that is not a specified service business (for example, one that is not involved in accounting, health law, consulting, financial services, engineering, or any business where the principal asset involves the skill or reputation of the owner or its employees). You want to ensure that you meet these requirements, as–even if you convert to a C corporation– you will not be eligible if you do not. For example, if the existing outstanding stock of the company was not issued while it was a C corporation, it will never be eligible for benefits upon sale, therefore, the C corporation would have to issue new shares of stock to the shareholders–who would then have to hold that stock for five years and meet all of the other requirements–before that stock can be sold tax-free. Other Means Of Achieving Same Benefit Keep in mind, however, that attorneys who practice in business formation may be able to advise you on other ways to exclude post-conversion appreciation under section 1202. For example, section 1202(g) also allows for a pass-through entity to hold qualified small business stock; as long as all of the aforementioned requirements have also been met. In addition, the owners of the pass-through entity can exclude their share of that entity’s gain upon its disposition of qualified small business stock as long as two additional requirements are met: The owners of the entity must hold an interest in that entity as soon as it acquires that qualified small business stock through the date of disposition; and Each owner can only exclude the gain up to their share on the date that the entity acquired the stock. Contact Our Florida Business Formation Attorneys to Find Out More The lesson here is; if you’re thinking of switching to a C corporation, you want to ensure that you consult an experienced business formation attorney first in order to ensure that you do it right, as a mistake could quite literally costing millions. Contact our Tampa business and corporate attorneys at HD Law Partners today to find out more. Resource: forbes.com/sites/anthonynitti/2019/05/13/switching-from-s-to-c-corporation-how-you-do-it-could-save-or-cost-you-millions/#5b09abb27f74 If You Are a Business Owner or Thinking Of Forming a Business, Make Sure You Do This before Tax Season Arrives Posted in Uncategorized | No Comments » Connect with us Archives May 2026 April 2026 March 2026 February 2026 January 2026 December 2025 November 2025 October 2025 September 2025 July 2025 June 2025 January 2025 January 2024 December 2023 November 2023 October 2023 September 2023 August 2023 July 2023 June 2023 May 2023 April 2023 March 2023 February 2023 January 2023 December 2022 November 2022 October 2022 September 2022 August 2022 July 2022 May 2022 April 2022 March 2022 November 2021 October 2021 September 2021 August 2021 July 2021 May 2021 April 2021 March 2021 February 2021 January 2021 December 2020 November 2020 October 2020 August 2020 July 2020 June 2020 May 2020 April 2020 March 2020 February 2020 January 2020 December 2019 November 2019 October 2019 September 2019 August 2019 July 2019 June 2019 May 2019 April 2019 March 2019 February 2019 January 2019 December 2018 November 2018 October 2018 September 2018 August 2018 July 2018 June 2018 May 2018 April 2018 March 2018 February 2018 January 2018 December 2017 November 2017 October 2017 September 2017 August 2017 July 2017 June 2017 May 2017 April 2017 March 2017 February 2017 January 2017 December 2016 November 2016 October 2016 November 13 Categories Alimony Appellate Arbitration Auto Accidents Auto Insurance Business Corporate Business Insurance Law Child Custody Child Support Criminal Law Divorce Family Law FEMA Insurance Payments Florida’s Mandatory 2‑Hour Legal Professionalism CLE: Foreclosure Defense Fort Myers Hurricane Insurance Attorney General Guardianship HD Law Partners Service HOA/Property Management Homeowners Association Homeowners Insurance Hurricane Claims Hurricane Insurance Insurance Bad Faith Insurance Claims Insurance Defense Insurance Litigation Landlord Tenant Law Enforcement Liability Loan Modifications Mold Water Damage Parental Rights Paternity Personal Injury Premises Liability Law Prenuptial Agreements Private Security Property Distribution Property Owner Law Sarasota Insurance Litigation Attorney Slip Fall Tampa Business and Corporate Attorneys tampa family attorney Tampa Insurance Attorneys Timeshare Timesharing Uncategorized HD Law Partners is proud to be your trusted full-service law firm Quick Links Property & Casualty Business & Corporate Litigation Family Law Contact Us Careers Get In Touch 2002 North Lois Avenue Suite 510 Tampa, FL 33607 813-253-5333 Contact Us