Revoke S Corp, Back to C Corp

Created OnDecember 26, 2017

Last Updated OnNovember 4, 2019

bycyberbasement

Posted October 3, 2018

The hot question since the passage of the Tax Cuts & Jobs Act of 2017 and Section 199A is, “Should I revoke S Corp status and go to C Corp?” The answer is No.

Quick Numbers-

S Corp Income	100,000	200,000	300,000
Salary	40,000	80,000	120,000
Payroll Tax	6,120	12,240	18,360
Income Tax	6,980	24,150	44,266
Total Tax S Corp	13,100	36,390	62,626

C Corp Income	100,000	200,000	300,000
C Corp Tax	21,000	42,000	63,000
Dividends	79,000	158,000	237,000
Dividend Tax	0	23,700	44,556
Total C Corp Tax	21,000	65,700	107,556

Effective S Tax Rate	13.1%	18.2%	20.9%
Effective C Tax Rate	21.0%	32.9%	35.9%
Delta (extra tax because of C Corp)	7.9%	14.7%	15.0%

Assumptions included Section 199A deduction for the S corporation’s shareholder plus $24,000 in standard deduction, in addition to the 3.8% surtax on top of the 15% capital gains tax rate for the $300,000 column. As you can see, a C Corp does not make sense after you add in capital gains tax on the dividends. This in turn makes sense- the lawmakers didn’t set out to kill S corporations. They set out to give every business owner a tax break. Geez… half of Congress (535 doesn’t divide evenly, we get it) probably run S corporations on the side.

So, please pump the brakes on the “I wanna dump my S Corp for the magical tax arbitrage offered by a C Corp” nonsense.

Taxpayer’s Comprehensive Guide to LLCs and S Corps : 2019 Edition
This KB article is an excerpt from our book which is available in paperback from Amazon, as an eBook for Kindle and as a PDF from ClickBank. We used to publish with iTunes and Nook, but keeping up with two different formats was brutal. You can cruise through these KB articles, click on the fancy buttons below or visit our webpage which provides more information at-


$24.95	$17.95	$12.95

Taxpayer’s Comprehensive Guide to LLCs and S Corps