C Corp to S Corp Status

Time to Switch Your C Corp to S Corp Status?
by: Bonfiglio & Asterita, LLC.
Bonfiglio and Asterita, LLC NY Attorneys at Law
Bonfiglio and Asterita, LLC NJ Attorneys at Law

Thanks to legislation passed in 2013, the federal income tax rates for individuals remain historically low for single taxpayers with taxable income below $400,000 ($450,000 for married couples filing jointly). That’s the good news. The bad news: The rates for C corporations remain at the same levels that have been in place for years.
So you may wonder if you should switch a C corporation to S corporation status? Then, all the company’s taxable income would be passed through to you and the other shareholders and taxed at the relatively favorable rates for individuals. You also wouldn’t have to worry about double taxation of corporate profits anymore.

It’s something to think about, but there are several factors to consider.

To assess what, if anything, your C corporation should do, let’s first review the federal income tax rate structure for C corporations. The first $100,000 of annual corporate income is taxed at much lower rates than those that apply to high-income individuals. Specifically, the average rate on the first $100,000 of C corporation income is only 22.25 percent. If that same $100,000 was earned by an S corporation and passed through to you and the other family-member shareholders, the tax hit would almost certainly be at higher rates — probably 28 percent or more. If your family C corporation’s annual taxable income is above $335,000, the company pays an average federal rate of 34 percent. That’s still below the 39.6 percent maximum rate for individuals. (See right-hand chart for the complete corporate tax rate schedule.)

C Corp to S Corp Status Staten Island NY Lawyer

Thanks to legislation passed in 2013, the federal income tax rates for individuals remain historically low for single taxpayers with taxable income below $400,000 ($450,000 for married couples filing jointly). That’s the good news. The bad news: The rates for C corporations remain at the same levels that have been in place for years.
So you may wonder if you should switch a C corporation to S corporation status? Then, all the company’s taxable income would be passed through to you and the other shareholders and taxed at the relatively favorable rates for individuals. You also wouldn’t have to worry about double taxation of corporate profits anymore.

It’s something to think about, but there are several factors to consider.

To assess what, if anything, your C corporation should do, let’s first review the federal income tax rate structure for C corporations. The first $100,000 of annual corporate income is taxed at much lower rates than those that apply to high-income individuals. Specifically, the average rate on the first $100,000 of C corporation income is only 22.25 percent. If that same $100,000 was earned by an S corporation and passed through to you and the other family-member shareholders, the tax hit would almost certainly be at higher rates — probably 28 percent or more. If your family C corporation’s annual taxable income is above $335,000, the company pays an average federal rate of 34 percent. That’s still below the 39.6 percent maximum rate for individuals. (See right-hand chart for the complete corporate tax rate schedule.)

 

Corporate Tax Rate Schedule*

Taxable
income from

But not
more than

Corporate
tax rate

$             0 $     50,000

15%

$     50,001 $     75,000

25%

$     75,001 $    100,000

34%

$    100,001 $    335,000

39%

$    335,001 $10,000,000

34%

$10,000,001 $15,000,000

35%

$15,000,001 $18,333,333

38%

$18,333,334

35%

*Does not include personal service corporations, which are taxed at a flat rate of 35%

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