Tax Guru – Ker$tetter Letter

Q:

Subject: Filing as a “S” Corporation

Good morning!

I just completed my tax filing for 2005 as a sole propriotor.  My accountant suggested I become a “S” Corporation.  I made $70,000 last year but after expenses made $20,000.  I am paying $3899 to the Federal Government and $78 to the State.

 

My accountant said “not” to file as a “C” Corporation.  Can you give me more information?

 

Thanks,

A:

There is no one size fits all for deciding which entity type is best for a particular situation. 

Your accountant should be able to explain why s/he decided that an S corp is best for you, including addressing the various issues that I mentioned in my article on the differences between C and S corps.

If your accountant just blindly decided that an S was right for you because s/he always chooses S corps (as some tax pros do), it’s time to find a new tax advisor who will take the time to properly analyze your situation before reaching a decision.  Such an analysis should not be done unilaterally by the accountant and should include a lot of questions of you and any other people involved in your business.  In a way, it’s similar to a doctor prescribing medication.  That can’t be done without a thorough diagnosis of the patient.  Same thing for structuring a business.

Good luck.

Kerry Kerstetter