It is not a choice to be made lightly to go from a S Corp to a C Corp or the other way around. Legal and financial ramifications abound, and once you make the decision, it can be challenging to reverse. But occasionally, it’s desirable or even necessary to change from one kind of organization to another. How frequently can you do it, is the question. The answer is that switching from a S corporation to a C corporation or vice versa is permissible an unlimited number of times. There are some limitations on when and how you can do it, though.
First, you must cancel your S Corp election in order to convert from a S Corp to a C Corp. The shareholders must formally approve this, and certain paperwork must be filed with the IRS. You can choose to become a C Corp after the termination is complete.
You must meet certain qualifying conditions and submit an election to the IRS in order to convert from a C Corp to a S Corp. One of the main prerequisites is that you can only have 100 shareholders, and they all need to be people, estates, or specific kinds of trusts. You can make the election by filing Form 2553 with the IRS if you satisfy these conditions.
The built-in gains tax is something to be aware of while changing from a C Corp to a S Corp. Any valued assets that the C Corp still owns at the time of the election are subject to this tax. You might have to liquidate these assets before completing the transfer in order to avoid paying this tax.
When you convert to a S Corp, what happens to your C Corp losses? You cannot carry forward any C Corp losses to offset S Corp income, is the correct response. However, any capital gains from the sale of appreciated assets before to the conversion can be offset by any C Corp losses.
Finally, there are a couple choices available to you if you have valuable real estate in a C Corp and wish to remove it from the business. You have three options for dealing with the property: selling it and paying the built-in gains tax; transferring it to a S Corp and paying no tax; or paying a dividend to the shareholders. Before choosing, it’s vital to speak with a tax expert because each choice has advantages and disadvantages of its own.
In conclusion, you can change from a S corporation to a C corporation as many times as you like. There are limitations on when and how you can make the change, and there are tax repercussions to take into account. To make the best choice for your company, it’s crucial to seek the advice of a tax expert.