San Francisco ‘C’ Corporation and Tax Gotchas: The Accumulated Assets Tax

Filed in CPA Blog by on November 30, 2014
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San Francisco is a city of entrepreneurship. Many residents start out as employees of technology companies such as Facebook, twitter, or yelp. And then they go off and start their own entrepreneurial company. Still others start their own business in a totally non-technology field such as restaurants or consumer businesses. And still others work in the nonprofit sector, changing the world one cause at a time. Ours is truly a city of entrepreneurship!
Accumulated Assets tax and San Francisco startups
As a top accounting firm in San Francisco, California, many people come to us asking what type of business organization will be best for them. As tax advisers, we can give thorough advice as to whether you want to be a C Corporation or an S corporation or perhaps an LLC. You may or may not know that one of the major differences between a C corporation and an S corporation is that the former is subject to so-called double taxation, whereas the latter is not. And, C corporations are able to accumulate assets inside of them, in a way that S corporations really cannot.

Choice of Business Organization for a San Francisco Start-up: ‘C’ Corporations vs. ‘S’ CorporationsSo in some situations, people may elect to use a C corporation to accumulate income, and essentially transform that income into assets. This is especially important if you have a capital-intensive business. However the Internal Revenue Service scrutinizes the accumulated assets inside of a C Corporation and, if you are not careful, you may be subject to the so-called accumulated assets tax. So even if you have already decided on using a C corporation, or your business has been in business for many years, we can still advise you on the best strategies to minimize your tax liability, and avoid the accumulated assets tax.

For an informative informational article on this subject, please read our December San Francisco tax tips bulletin, here.

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