Sam is trying to decide whether he should operate his business as a C cor- porat

Question

Sam is trying to decide whether he should operate his business as a C cor- poration or as an S corporation. Due to potential environmental hazard problems, it is imperative that the business have limited liability. Sam is leaning toward the S corpora- tion form because it avoids double taxation. However, he is concerned that he may en- counter difficulty several years in the future when he may want to issue some preferred stock to his son as a way of motivating him to remain active in the business. Sue, Sam’s friend, says that he can maintain maximum flexibility by operating as a C corporation. According to her, Sam can avoid double taxation by paying himself a salary equal to the before-tax earnings. As Sam’s tax adviser, what is your advice to him?

Explanation / Answer

Both the ways sam has some benifits.

In order to avoid Double taxation. he is preferred for S Corporation and C due to hassel free issance of preferred stock to son.

Since double taxation is the major impact in the operations we have to take the option of S.

Preffered stock can be issued even in S by some other way.

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