Most taxpayers understand that having an S corporation often eliminates the so-called “double tax” issue C corporations pose. However, the majority of S corporations begin as C corporations and the activity that occurred during the time it was a C corporation will determine how and when to tax distributions from the S corporation.
C corporations cannot avoid double taxation on profits simply by electing to be treated as an S corporation (yet there are many other ways to save this double tax on C corporations, stay subscribed to learn about them). Withdrawing C corporation profits even when it later becomes an S corporation can create an extra tax. Here’s how to avoid that.
