C-Corp or S-Corp

[Christa LaFlam]

My husband and I set up our business as a C-Corp, in order to take advantage of the tax benefits/write offs as well as the asset protection that the C-Corp allows for. However, the first year I went to have the business taxes done, the tax preparer asked why we were not filing as an S-Corp. According to him, a C-Corp can elect to be designated as an S-Corp for tax purposes, but it depends on the type of business that the corporation engages in. I was told by another in the real estate business, that real estate is NOT one of those that can change over to an S-Corp. Does anyone have any insight into the allowability of us changing to an S-Corp with the IRS, and what that would mean for the tax write offs and asset protection?

[Bill Walston]

Originally posted by Christa LaFlam:

My husband and I set up our business as a C-Corp, in order to take advantage of the tax benefits/write offs as well as the asset protection that the C-Corp allows for. However, the first year I went to have the business taxes done, the tax preparer asked why we were not filing as an S-Corp. According to him, a C-Corp can elect to be designated as an S-Corp for tax purposes, but it depends on the type of business that the corporation engages in. I was told by another in the real estate business, that real estate is NOT one of those that can change over to an S-Corp. Does anyone have any insight into the allowability of us changing to an S-Corp with the IRS, and what that would mean for the tax write offs and asset protection?

IMO, holding real estate in a corporation (either C or S) is a TERRIBLE idea. (They do work well for a real estate brokerage or property management company though.) The individual who told you that a "real estate business" cannot "change over to an S-Corp" is misinformed.

First, let me say that you are not changing to an S-Corp. A corporation is a corporation is a corporation. The designation of C- or S-Corp is merely a tax election. Electing S-Corp status would have no effect on the asset protection provided by the corporate entity. The tax write-offs, if any, would flow from the corporation to your personal return via a Schedule K-1 and be reported on Schedule E.