S Corporations built in gains tax

Posted on March 4, 2011


In the past if you converted a C corporation to an S corporation and sold any assets within 10 years you had to pay a double tax on the gain on sale of the asset based on the portion of the gain that applied to the term of the C corporation.  For 2009 and 2010 that holding period is reduced from 10 years to 7 years and for 2011 only the holding period is further reduced to 5 years.  This can be a big issue for someone who has always had a C corporation and now wants to sell the business.  In most instances the buyer will not buy the corporation so the seller pays a tax inside the C corporation and then pays another tax when the funds are withdrawn from the C corporation to use in retirement.

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