A new client approaches you about incorporating their business which is currently a sole proprietorship. She is interested in whether an S Corporation election would make sense. The business is very profitable and generates an average pre-tax income of $1,000,000 per year. Very little of the operating cash flow is needed in the business. The client is in the 37% individual tax bracket. As she is leaving the meeting, the client mentions that one of the business's suppliers, Randall Corporation, is interested in acquiring a 20% interest in the business after it incorporates. What should you consider in your advice?

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When considering whether to elect S Corporation status for the business there are several factors to take into account given the profitability and the ... View the full answer