Ok gang, I'm getting wildly conflicting info here.
Our company is an S-Corp, and has been such since we founded the company 13 years ago.
At the time, both our corporate lawyer and our CPA said that was best for us.
Now, our CPA has been urging us to change from an S-Corp to a regular C-Corp... for a variety of reasons... among which so that we can start company retirement funds for employees (namely, me and my partner... and anyone else who wants to join in). And a few other reasons, as well.
We even sent the IRS the required notification of intent to switch corporation types yesterday. We've had the same CPA for the entire time who is a good and knowledgeable guy and has never steered us wrong.
Last night my business partner happened to be on the phone with his brother in another state, whose wife is a CPA. She got on the horn and basically said "What??? Why on earth would you change from an 'S' to a 'C'?" She went on to say that an S-Corp can just as easily do any of the things that a C-Corp can that our CPA had listed as prompting the move. She went on to mention that her own corporate clients were coming to her in droves now trying to change to S-corps from C-corps. Which is of course a much more difficult move. S to C is easy... the other way, not as much.
She was baffled as to why anyone would give up an S-Corp status.
Just to double check, my partner just now phoned a buddy of his (they are on some community board together) who is also a CPA. He was also dumbfounded as to why we would want to change.
We need to have another good heart-to-heart with our own CPA.
But in the meantime.... what are you guys? And why?
Fantastic Plastic Entertainment, Inc.
S-Corp. Always have been since founded in 1996. From all I've read on the subject, C-Corp status is typically what's recommended for very large corporations with official boards of directors etc.
We have a retirement plan (Simple IRA) that was setup 8 years ago and works just like a retirement plan.
Magnetic Image, Inc.
I'm changing from a sole proprietor of the last 18 years (at times up to 6 employees) to an s-corp this month. Way better tax advantages that were explained to me by my new CPA of 4 months (5th for me since starting up and ironically the cheapest). I'll now be an employee! My retirement will essentially stay the same. Don't have to worry about healthcare thanks to wifey.
S-Corp for the past 21 years. I was always told that being a C-Corp meant that one would first pay taxes as a C-Corp and then again as an individual.
[Todd Terry] "so that we can start company retirement funds for employees"
Whaa??? We have a SEP IRA plan and have for years.
Our video company is an S-Corp and our feature film company is an LLC.
It's a dry heat!
Sony HDCAM F-900 & HDW-2000/1 deck
5 Final Cut (not quite PRO) systems
Sony HVR-M25 HDV deck
2-Sony EX-1 HD .
Ask me how to Market Yourself using Send Out Cards
Clearly, you're in territory that goes beyond getting advice from folks on a discussion board.
You need to consult a professional who's familiar with the laws governing your particular location and situation.
Any other advice (including mine) is worth exactly what you're paying for it.
That said, it was drummed into me, many moons ago when starting my business, that if you choose ANY corporate form you have to be RELENTLESS in having regular, formal corporate meetings and keeping the minutes of same.
Because any and all of the protections in shielding personal assets from being used to settle corporate debts can be lost by any decent attorney who will "pierce the corporate veil" if you don't maintain scrupulous corporate record keeping.
Something to talk to your professional about.
I was literally talking with my atty yesterday about my switch to an s-corp and he asked "a true s-corp or and LLC with an S elective". That's a new one on me. Needless to say I have a mtg on Tuesday with my accountant and the atty to review the intricacies of it all.
And then I inquired about incorporating in another state - Delaware advertises quite a bit for that. The corp taxes are cheaper, but when I look at the administrative cost of corp filings (among other stuff) in 2 states, it doesn't give my small company any financial benefit.
Just had to respond to your post. I'd stongly listen to your partner's sister-in-law(CPA on the phone), but I might be a bit biased though as she's my Mom. Funny I talked to her yesterday and she didn't mention she'd talked to Phil.
Sure is a small world.
Johnny Cuevas, Editor
Ha... FUNNY... Thanks John. The world is too too small.
Thanks everyone else, as well.
Fantastic Plastic Entertainment, Inc.
Well Todd, as it goes I'll be changing my business to an LLC with S elective. This will give me the protection of a corporation with more tax advantages of a partnership; I'll be an employee of the company and have the ability to take draws too. Seems like a bit less corporate reporting too - just an official annual meeting. Will take only a week to create.
To my knowledge, the main difference between S and C corps is the so-called "double taxation" problem.
In an S-Corp, the business pays no taxes itself and all profits are reported on your personal tax return just like a sole prop. This means you pay full taxes + self-employment taxes on all profit whether you took it all home or left 3/4 of it in the business for growth, cash flow etc.. In other words, you are paying 28-33% tax rate plus 15% or so for SE tax on every dime in profit your company makes.
With a C-Corp, profits are taxed at the corporate level, which starts at 15% so it's much lower than the personal tax rate. This means that you personally report and pay taxes only on your paycheck as an employee of the company, while all remaining profit is taxed at a lower level. The exception is if/when you take a disbursement as a company shareholder/owner - you would have to pay taxes on that as well, and they call it double-taxation even though that's a little miseleading. It can be worked around by never taking disbursements and having a very high salary instead. You end up paying more in taxes in some ways, but that can be offset by the much lower taxes you pay on money left in the business.
In short, if you have profit sitting in your business bank account on December 31st, you will end up paying as much as 30% LESS tax as a C-Corp on that money than you would as an S-Corp.
State taxes are usually lower for S-Corps.
As for the meetings, you only have to meet once a year and keep good business records to avoid the "piercing of the corporate veil." Both C/S corps are required to do it and it's really not something to worry about.