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C corporations

Is now the time to switch to an S corporation?

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in Small Business Tax

With the top individual federal income tax rate falling to 35 percent last year (down from 38.6 percent), now is a great time to consider converting your existing C corporation to an S corporation. In addition to taking advantage of the lower rates, such a switch lets you avoid double taxation of future corporate income and gains. This Special Report explains how a conversion would work and whether you should make the switch.

Benefits of S corp status

If you elect S corp status, your corporation's income and deduction items would be passed through to you, reported on your 1040 and taxed at your personal rates.

If you have lots of income from other sources or if your company is quite profitable, you may be forced to pay the
35 percent maximum rate on most or all of the incremental income passed through from the S corp to you. (For 2004, the 35 percent maximum rate hits taxable income above $319,100.)

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