Some may not want to report the residual income of the S corporation and incur an extra bite on their personal income tax. A complication of making an S election is the built-in gain tax. This is a second-level tax imposed on the gain from sales of appreciated assets incurred by an S corporation that converted from a C corporation. The potential trap for the built-in gain tax is for 10 years, beginning with the first S corporation year. But there are many advantages to S corporation status.
Careful analysis is recommended before making the decision.
With proper tax planning, the tax traps may be avoided and you may enjoy significant tax benefits. The author and publisher are not rendering professional advice and assume no liability in connection with its use. Consult with professional advisers regarding your specific situation. Readers are invited to submit questions to the Business Editor . Back to top.