Revoke S Corp, Back to C Corp
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 |