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I'm looking at incorporating my sole proprietorship as an S Corp. (An alternative I'm also looking into is an LLC taxed as an S Corp).

My existing company already has income and expenses in 2020. Even if I filed paperwork to incorporate today, I'd still desire to have this income and expense on the books for the year for my personal tax return.

I understand that assets can be transferred to the corporation when incorporating in exchange for shares, but how do I recognize this existing income and expense?

Do I still file a Schedule C for the portion of time that my business operated unincorporated, essentially recognizing the business in both it's states, as sole proprietor and as well as in it's incorporated state?

Please let me know where I can find reference material surrounding this.

Thank you!

Update:

The primary purpose for looking into an S Corp is to save money on my tax return and avoid the Self Employment tax and take advantage of any other potential tax opportunities that exist in these structures.

  • Why consider an LLC taxed as an S corp when you can just use an S corp? – Jack Fleeting Jan 7 at 17:36
  • @JackFleeting, because the S Corp carries extra responsibilities, structure, etc. that would be more burdensome given where my business is at this point. I do not have a real life need for "shares" or "by laws" at this point in time. I'm a single-employee business. – Ryan Jan 7 at 21:23
  • Then why not just stick to a single-member LLC? One benefit is that a single member LLC is treated for tax purposes like a sole proprietorship (more or less), so transition to it is simpler. – Jack Fleeting Jan 7 at 21:51
  • @JackFleeting, perhaps I should have clarified this: I need both the liability protection as well as the many various tax advantages that can come from the corporate taxing. Right now I'm paying Self Employment tax which can be quite hefty whereas a fair amount of that is mitigated by going the way of an S Corp. – Ryan Jan 7 at 22:05
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Each entity is taxed on its own income

So yes, you need to file multiple returns. Or wait until the start of new financial year to change structures so each is operating only in one period.

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