3 Tax Disadvantages of S Corps. -- Kiritsis Law Firm Group 212 922 0005

Apr 27, 2021

S Corp tax election provides a number of benefits; however, there are some downfalls to S Corp perspective, especially from a tax perspective.

1. Paying taxes at the exit door. S Corps may not be particularly hard to structure, but could create a situation of being impossible to leave an S Corp tax election, due to taxes that may be due to exit. A common example, are C Corps who elected S Corps, and have significantly appreciated assets, which could trigger taxes upon sale.

2. Paying taxes to enter. In certain situations, mostly involving poor planning, electing S Corp tax status could create a tax liability for its S Corp shareholders.

3. Paying taxes without getting cash. In a common departure from the deeply rooted tax principle of ability to pay, being a key factor of deterring the tax payment timing rules, lies in the areas of S Corp, LLC and partnership taxation.

 

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