Choice between C corp or S corp

Financial Planning Tax Strategies
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5 middle age employees are inheriting a small company, whose original owner passed away about 10 months ago.

The company is presently an S corp. They have the choice now about making it a C corporation, or have it remain as is.

They have a lawyer and an accountant, whom I assume are quite competent. And they are getting assistance and advice from the Service Corps of Retired Executives (SCORE).

I was asked a question or two about the advantages and disadvantages of each, and I replied that the decision was way out of my league.

But I said I would post something here, since there are some very sharp people here that work in this sort of thing.  I imagine there are a lot of variables to consider for this sort of thing.  But if anyone would like to offer an opinion, or advice, or what to watch out for, your comments would be greatly appreciated.

I’ll be hanging out in Ashevill, NC area for a little while longer, then up to Queens…and who knows from there. I’m always happy to buy someone a drink.

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Darn! I’m a SCORE counselor in Boston and I’d love to get together for a drink.

I’m sure between the attorney and the tax accountant and the SCORE counselor, the 5 folks who you are talking about will get some great input that can be used to make their best decision.

I have a PDF that I send my SCORE clients that explain the pros and cons of each type of business entity type which my clients find helpful. Unfortunately, I cannot attach a PDF to this post and TMF has taken away the direct message feature that the old boards used to have. BUT - it’s always best to consult with their attorney and accountant - they should be able to assess where each person’s priorities lie in terms of tax strategy and then guide them to the best decision.

Also, I think it will be somewhat difficult for all 5 to have the same tax strategy in place - especially if they come from different families / backgrounds. Everyone does things differently in life mostly due to planned and unplanned events that affect each differently (think death, divorce, kids, property, etc.).

Best of Luck to your friends who I hope are wildly successful in their newly found company.

'38Packard

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Not from personal experience, but food for thought:

https://www.wolterskluwer.com/en/expert-insights/s-corp-vs-c-corp-differences-benefits#:~:text=Single%20layer%20of%20taxation%3A%20The,taxed%20at%20the%20individual%20level.

Is there a reason why a limited liability company structure has been rules out? I assume yes, but just asking.

Good luck to your friends.

Regards, JAFO

Disclaimer

Yes, I am a lawyer, BUT THIS IS NOT LEGAL ADVICE; it is only general information. NO CLIENT RELATIONSHIP IS INTENDED TO BE CREATED, NOR IS ANY SUCH RELATIONSHIP SO CREATED. FOR SPECIFIC LEGAL ADVICE YOU SHOULD TALK TO A LAWYER IN YOUR AREA.

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Thanks much for taking the time to respond. I do love Beantown, having watched Teddy Ballgame play his last two seasons at Fenway, and living on Beacon Hill for a short time in my college days. But we don’t plan to be there on this trip. If the spirit moves you, feel free to email the PDF to me at trees778899@hotmail.com.

Cheers,

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They are a PLLC (Professional Limited Liability Company). But they have been told they still have to choose between a C corp. or an S corp. for federal tax regulations. Thank you much for taking the time to respond.

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Please check your inbox for that email from my SCORE.org account.

'38Packard

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Thanks much. by the way, do you ever get to Hot August Nights in Reno? There are a lot of souped up hot rods there, but also some authentic refurbished cars that try to be as close to the original as possible. Every summer I hope to go. And every summer I wind up on a fire someplace.