The right entity choice can make a difference in the taxes you owe for your business. Although S corporations can provide substantial tax advantages over C corporations in some situations, there are potential tax problems you should assess before deciding to convert from C to S status. One of the issues to consider is last-in, first-out (LIFO) inventory. A C corporation that uses LIFO inventory must pay tax on the benefits it derived by using LIFO if it converts to an S corporation. Other issues to understand are the built-in gains tax, passive income tax and unused net operating losses. We can explain how these factors will affect your company and develop strategies to minimize taxes.