Ah, your friend the IRS makes every effort to simplify life and have business run smooth and easy...not.  Clearly, no one at the IRS has ever been in business for themselves, and not many of your legislators have either, seeing as there are more rules than you can shake a stick at, and here is yet another one: the rule under 1244 to be a "small business," which has a variety of benefits that you need to talk to a CPA about.  One of these benefits is a tax reduction when you sell, so it definitely can be to your advantage to discuss adopting the 1244 rules for your corporation with your CPA. Note that the 1244 rules are not the same as electing to be taxed as an S corporation; that's a separate form that you file with the IRS called an "S Election."