"S" Corporations

1. Fringe Benefit Restrictions - Health insurance premiums for a more than 2% stockholder are not deductible by "S" Corporations. The deduction is permitted on the stockholder's individual income tax returns, as an "adjustment" to income, without the 7.5% threshold required for medical expenses.

2. Restricted use of a Fiscal Year End other than December 31^st. "S" Corporations must end their tax year in December, unless they can demonstrate a "business purpose" for choosing a fiscal year and receive IRS permission to do so.

3. Only only class of stock,  an "S" corporation can not have two classes of stock, with regards to distributions or liquidations proceeds. Difference in stock related to voting and non-voting shares is permitted.

4. "S" stock can not be owned by a "C" Corporation. If you had hopes of selling shares of your "S" stock or merging with a "C" Corporation, you would have to estimate or revoke your "S" status, which is a relatively easy thing to accomplish.

5. "S" Corporations may be subject to "special" taxes:

• Built in Gains Tax if it sells assets of property that appreciated while it was a "C" Corporation.

• Capital Gains Tax if it sells property acquired when it was a "C" Corporation.

THESE TWO TAXES ABOVE DO NOT APPLY TO CORPORATIONS THAT HAVE ELECTED "S" STATUS FOR ALL ITS TAX YEARS.

• Excess Net Passive Investment Income. If more than 25% of gross receipts for a particular tax year are from "passive income," and the "S" Corporation has "accumulated earnings" from when it was a "C" Corporation, it will be subject to a 35% excess net passive income tax, to the extent of its taxable income for that year.