Tax Law (Questions About Taxes)/Real Estate S-Corp/LLC

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Question
Hello Richard,

A client began operating renting commercial real estate as a C-Corp. I had them elect to become an S-Corp as of 1/1/2014.  At the advice of an attorney, he's requesting they become an LLC for the great flexibility, etc.

My concerns are as follows:

1. Being the company was originally structured as a C-Corp and it's been less than 10 years, should they dissolve the current corporation wouldn't that be treated as if they sold the property to the shareholders at FMV?

2. Would the same tax consequence arrise should they now convert the existing corporation to an LLC?

My objective is to determine if they should either keep their current structure and move forward or is it worth changing their structure to an LLC.

Thank you,

Jeff

Answer
We can only make these decisions in the light of the purpose for the change.

They were a C-Corp. Did anyone ask why they were a C-Corp? What purpose did the client imagine the C-corp would fulfill?

You wanted to change it to an S-Corp? Why? What benefit were you looking for? And then does that negate some other benefit?

An attorney wants to change it again to an LLC for greater flexibility.   But "Greater Flexibility" is not a benefit. Greater flexibility MIGHT be useful in obtaining a benefit, but we need to know what benefit is desired, to see if it is worth giving up a benefit elsewhere.

Here are other questions:
Are the rentals cash-flowing positively? Or Negatively? In my assessment that would make a difference.
Did the owners of the business need all of the revenues from the rentals to contribute to their personal lifestyle? Or was some portion of the rental income available for other investments?
Is pushing at least 80% (Sub-S) of the total net revenue into the earned personal income category better, so that Social Security, Medicare, and the highest personal tax rates can be paid?
Is pushing 100% (LLC) of the total net revenue into the earned personal income category better, so that Social Security, Medicare, and the highest personal tax rates can be paid?

When we start making decisions with only part of an understanding then we start hurting people.

Did you run the numbers on how the income into the C-Corp was taxed, compared to how it will be taxed in an S-Corp? What was the result?

Give me a call and we can talk about it. 702 792-3392  

Tax Law (Questions About Taxes)

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Richard Fritzler

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Specializing in Business and Corporate taxation. Comparing the advantages and requirements of different business entities, such as Sub-S Corporations, LLC`s, Partnerships (Both Limited and General), Doing Business as a Sole Proprietor, or Using a C-Corporation. Issues regarding K-1 distributions, 1040, schedule C, 1120, 1120s. Are you considering domiciling a Corporation in a low tax state? I can review the benefits and misinformation that exists.

Experience

I have been in the business of assisting business owners in reducing their taxes and liability since 1986.

Organizations
National Small Business Owners Association.
Publications
Contributing author to "The Corporate Standard Newsletter".


Publications
Contributing author to "The Corporate Standard Newsletter".
Ezinearticles.com articlesbase.com

Education/Credentials
I have been in the business of assisting business owners in reducing their taxes and liability since 1986.

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