#entity-conversion
Navigate the process of changing your business entity type for tax and legal benefits
Revoking an S election takes a signed statement from shareholders holding more than 50% of shares, received by March 15 for a January 1 effective date, and it bars re-election for five tax years. This guide covers the required statement contents, mid-year short-year splits, the Section 1374 built-in gains tax on appreciated assets, and the post-termination window for tax-free AAA distributions.
A practical walkthrough of the Section 368(a)(1)(F) reorganization — the six regulatory requirements, the six-step Rev. Rul. 2008-18 choreography, why PE buyers prefer it to a 338(h)(10) election, and how it preserves the operating EIN while giving the buyer asset-basis step-up and the seller tax-deferred rollover equity.
Section 1375 imposes a flat 21% sting tax on S corporations that carry C-corp earnings and profits when passive investment income exceeds 25% of gross receipts, and three consecutive years over that threshold terminates the S election automatically. This guide walks through the excess net passive income formula, the three-year cliff under Section 1362(d)(3), and three planning moves to defuse exposure before year-end.
The step transaction doctrine lets the IRS treat a sequence of formally separate steps as one taxable transaction. This guide explains the three tests courts apply — end result, mutual interdependence, and binding commitment — the landmark cases (Gregory v. Helvering, Court Holding, Kimbell-Diamond), the 2026 transactions most exposed (1031 drop-and-swaps, pre-sale entity conversions, gifts before the estate exemption sunset), and the documentation habits that keep multi-step plans defensible.
Form 8832 lets eligible entities — domestic LLCs and most foreign companies — elect to be taxed as a disregarded entity, partnership, or C corporation. This guide covers default classifications, the 60-month lockout, late-election relief under Rev. Proc. 2009-41, and how Form 8832 differs from Form 2553.
When a C corporation converts to an S corporation, Section 1374 imposes a 21% corporate-level tax on appreciated assets disposed of during a five-year recognition period. This guide walks through NUBIG, NRBIG, the 2026 rules, a worked example, and seven planning moves to avoid a six-figure surprise.
A sole proprietor netting $100,000 pays roughly $14,130 in self-employment tax that an S corp owner can legally avoid. This guide explains the break-even math, Form 2553 deadlines, reasonable compensation audit triggers, and the annual compliance costs that decide whether the switch actually saves money.
Learn when and how to change your business entity structure, from sole proprietorship to LLC, LLC to S-Corp, or LLC to C-Corp. Includes income thresholds, step-by-step processes, tax implications, and common mistakes to avoid.
