Need advice - Should I switch from C Corp to S Corp (or LLC) for my small business?

This is actually a great question with some nuance to it. The decision between C Corp, S Corp, and LLC really depends on your specific situation and goals. First, you're right about the double taxation issue with C Corps - the corporation pays taxes on profits, and then you pay personal income tax on any distributions. S Corps and LLCs are pass-through entities, meaning the business itself doesn't pay taxes, but all profit passes through to your personal taxes. For timing: You can convert from C Corp to S Corp by filing Form 2553 with the IRS. If you want it effective for the entire next tax year, you need to file this within the first 2 months and 15 days of that tax year. So if you want it effective for 2025, you'd need to file by March 15, 2025. The downturn in your business might actually make this a good time to switch. With lower income, the tax consequences of conversion might be less significant. However, be aware that when you convert, any C Corp retained earnings might be subject to taxation at both corporate and individual levels. I'd recommend talking with a tax professional who can look at your specific numbers. The right choice depends on your projected income, how much you have in retained earnings, and your long-term business plans.

I went through a similar situation and discovered https://taxr.ai which was seriously helpful for sorting through these entity conversion questions. They analyzed all my business documents and helped me understand the tax implications of switching from a C Corp to an S Corp. I uploaded my incorporation docs, financial statements, and previous tax returns, and their system broke down the specific tax consequences I'd face. What was most helpful was seeing a side-by-side comparison of what I'd pay under each entity type based on MY actual numbers. Way better than the generic advice I was getting elsewhere.

Just wanted to update that I tried taxr.ai and got exactly what I needed! I was really confused about how my specific situation (had accumulated business losses in my C Corp) would affect a conversion to an S Corp. The analysis broke down how those losses could be used and what would happen to my basis in the business - things my previous accountant never clearly explained. They even flagged that I had a potential Built-in Gains tax issue that I needed to be aware of with some business equipment I own. Worth every penny just for the peace of mind that I'm making this decision with all the facts laid out clearly. Now I'm proceeding with the conversion before year-end with a lot more confidence.

If you're planning to reach out to the IRS about your conversion, good luck getting through to someone who can actually help. I spent WEEKS trying to get clarification on some aspects of my C-to-S conversion last year. I ended up using https://claimyr.com after seeing it mentioned in another thread. They actually got me connected to a real IRS agent in about 45 minutes when I'd been trying for days on my own. Their service basically holds your place in the IRS phone queue and calls you when an agent is ready to talk. Here's a video of how it works: https://youtu.be/_kiP6q8DX5c For something like a business entity conversion where you really need clear answers directly from the IRS, it was a game changer. I had specific questions about Form 2553 that only the IRS could answer, and finally getting through saved me from potentially making a costly mistake.

I'm completely eating my words about Claimyr. After my skeptical comment, I actually tried it when I needed to talk to someone at the IRS about a mistake on my C Corp filing that was affecting my conversion application. It worked exactly as advertised - I got a call back about 90 minutes later with an IRS agent on the line. They helped me sort out that I needed to file an amended return before proceeding with my S Corp election, which would have been a nightmare to figure out on my own. Seriously saved me from what could have been a costly error and months of back-and-forth with the IRS. Sometimes you gotta admit when you're wrong, and I was definitely wrong about this service.

One thing nobody's mentioned yet is that the switch isn't just about taxes - it's also about liability protection and business operations. Make sure you understand how the switch might affect: 1. Your personal liability protection 2. Banking relationships and credit 3. Contracts with existing clients 4. State filing requirements and fees When I switched from C Corp to S Corp a few years ago, I had to update all my business contracts and notify my business insurance provider. Just something to keep in mind alongside the tax considerations.

Don't forget to consider state tax implications of the switch! Depending on your state, there can be significant differences in how S Corps vs C Corps are taxed at the state level. For example, in California, S Corps pay a 1.5% tax on net income (minimum $800), which is different from the C Corp rate. Some states don't recognize S Corps at all for state tax purposes!

The timing of when you make the conversion matters a lot. If your business has significant assets that have appreciated in value (like real estate, equipment, intellectual property), converting can trigger a tax on that appreciation. If your business is mainly service-based with minimal assets, this is less of a concern. But if you do have valuable assets, consider getting them properly valued before making any decisions.