Tax Guru – Ker$tetter Letter

Helping real people win the tax game.

More Confusion Over S Corps

Posted by taxguru on January 14, 2006


Subject: I liked your article

I liked your article.  I’m still a little naive.  Today I just sent in the S corp 2553 form my accountant gave me, signed and all, to the Dept of commerce of the state of utah.  And now after reading your article I’m a worried I should have put my foot down and demanded a C corp filing.  Up until it gets filed in a few days I’m just, and have been for the last couple of years, a sole proprietor, DBA, or what ever you call it.  2004 I made only 95k and this year I think I’ll only barely break 100k.  For what I make do I still have to be worried and switch to a C corp.  I origionally thought the C corp was the way to go but when I told my accountant this he just said, “oh you don’t want to be double taxed,…so we’ll go with an S corp.”  Me not knowing any better I just agreed. 
I am a consultant in that I contract directly (as apposed to subcontract) with clients to go in and help them out with back-log stuff.  I charge them an hourly fee and every week I submit my invoice and they pay me a couple weeks later.  I’m 34, married, and in 2 months will have 3 kids, and travel all over the U.S. twice a month.  So what should I do as far as my S or C corp. filing?



Only your personal tax advisor can properly assess which entity type is best for your particular situation.  As I’ve noted, many tax and legal do take a “one size fits all” approach and set up S corps without properly looking at the big picture.  You should have your accountant go over the points I raised in my article and make sure he has properly addressed them for your circumstances.  You should be concerned if you hear a lot of “oh, I didn’t think of that” from him.

From the confusing way you describe things, it may not be too late to choose a C corp status.  Form 2553 is filed with IRS after the corporation has been chartered by your state, and a Federal ID number (FEIN) has been obtained.  Until the 2553 is sent to IRS, and it is accepted, the corp is a normal C corp.

Good luck.

Kerry Kerstetter


Thanks for responding.  I have already dropped the Articles of Incorporation with the 2553 form in the mail, its on its way to be filed as an S corp.  I’ll print off your article and go over it with him.  Thanks again


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