What are the advantages and disadvantages of switching from a C corporation to a S corporation?
This is an unbelievably involved question. For ease of answering, I’ll assume that you’re not a personal service corporation. The “S” has the advantage of pass through income/loss, which might be a good thing. Also, there’s a certain level of savings with employment taxes. As long as you take out a “reasonable salary” (that’s a big decision right there), the rest of your income will pass through to your individual tax return and be taxed at your individual income tax rate. Another thing that’s kind of nice with the S is that it gives you some flexibility on cash flow. Say for instance with a C Corp, you want to reduce your year end liability so you take out a bonus from the corporation. If you’re short on cash, you’ll have to loan it right back to the corporation to make sure your cash flow doesn’t go south. With an S Corp, you’ve paid taxes on the pass through income, so you can take out the cash from the corporation when it becomes available. For example, let’s say you had $30,000 of
