Tax Guru – Ker$tetter Letter

Q:

Subject: Question about s-corp vs c-corp

I have a simple question regarding a s-corp vs. c-corp. I am partners with two other investors in commercial real estate that we rent. Currently we are an s-corp. The property is showing a profit of over $250,000 per year so each partner is reporting $83,333 income. We are not taking any money out and are not planning to for 5 years. We want to expand the business in the future so that is why we don’t take any profits. As you know we are getting hammered on taxes. We all have other jobs to provide income to live on so we don’t need the money right now. After 5 years or so we might sell out. My questions are:

1. Would a c-corp be to our advantage?
2. Should we switch back to an s-corp in the future?
3. Can we switch to a c-corp this year to cover any profits for 2006?

Can you give me any other suggestions or places to look for information about this subject?

A:

There are far too many options to consider and possible scenarios that can be used to achieve your goals for me to even begin giving you specific advice via this medium.

You will need to work directly with an experienced tax pro who can analyze your unique circumstances. I wish I could help; but I already have too many clients to take care of properly; so we are still trimming back on the difficult clients and are not accepting any new ones at this time. 

Unfortunately, we don’t have anyone specific to whom we could refer you. I did recently post some names and links for some like-minded tax pros around the country.

If you haven’t already done so, you should check out my tips on how to select the right tax preparer for you at. 

One aspect to your situation on which I can advise is for you to stop thinking of an all or nothing approach.  You don’t need to limit yourselves to one single corporation to run your business projects.  There are many benefits to using multiple entities for tax saving as well as liability protection reasons.  A good tax advisor should be able to explain how these would work for your unique circumstances.

I wish I could be of more assistance; and I wish you the best of luck.  

Kerry Kerstetter