Timeline for Capital Gains in an S Corp
Current License: CC BY-SA 3.0
5 events
| when toggle format | what | by | license | comment | |
|---|---|---|---|---|---|
| Oct 9, 2017 at 13:39 | comment | added | Pete Keen | The automatic conversion to C-corp only happens if the company both generates more than 25% of passive income and has accumulated earnings & profits. The important thing is that after 1983 S-corps cannot accumulate earnings & profits. All earnings pass directly through to shareholder on K-1 while retaining their character. The only time this rule comes into play is if you convert a C-corp with substantial accumulated earnings into an S-corp. | |
| Mar 12, 2014 at 5:07 | vote | accept | Brent Arias | ||
| Mar 11, 2014 at 22:11 | comment | added | littleadv | @Brent you don't. As I said - earned income is taxed at earned income rates. When you sell it, you can claim that the sale price is capital gains. The only benefit you get is that the owner draws are not taxed for FICA, but even that, if you're the sole employee, can be questioned by the IRS and land you in trouble. Since your salary is very close to the SSA limits, it will not be all that significant, mainly the medicare, but still - if IRS come after you, you may have to shed several additional thousands of dollars in taxes. | |
| Mar 11, 2014 at 18:06 | comment | added | Brent Arias | I have been operating my engineering services S-Corp for years. I pay myself 100k salary and I also take owner-draws which exceed my stock-basis. The amount beyond my stock-basis has always been taxed at my personal income marginal rate of 35%. I would like the owner-draws instead to be taxed at the lower capital gains rate of 15%. How do I qualify to make that transition and thereby receive a tax rate reduction? | |
| Mar 11, 2014 at 0:47 | history | answered | littleadv | CC BY-SA 3.0 |