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Tag Archive for Best Business Entity Structure

Is Your Business Still the Right Entity Under the New Tax Rule? Part 2

Blake Christian 2

More tips about determining the right corporate, partnership or other structure that’s best for your business—and where you are in life. Key Takeaways:

  • The legal structure of your business operations can have a significant impact on your annual income tax and estate planning.
  • When you and/or your heirs expect to be at or near the maximum income tax rates, you will generally want to leave appreciated and appreciating assets in the taxable estate, rather than transfer them prior to death.
  • In general, assets with the potential to appreciate in value should not be placed into an S or C Corporation.

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Choosing The Best Business Entity Structure Post Tax Cuts And Jobs Act (TCJA)

William Rogers, Tax Advisor, Choosing Best Business Entity Structure

For tax years beginning in 2018 and beyond, the Tax Cuts and Jobs Act (TCJA) created a flat 21% federal income tax rate for C corporations. Under prior law, C corporations were taxed at rates as high as 35%. The TCJA also reduced individual income tax rates, which apply to sole proprietorships and pass-through entities, including partnerships, S corporations, and, typically, limited liability companies (LLCs). The top rate, however, dropped only slightly, from 39.6% to 37%.

On the surface, that may make choosing C corporation structure seem like a no-brainer. But there are many other considerations involved.

Conventional Wisdom

Under prior tax law, conventional wisdom was that most small businesses should be set up as sole proprietorships or pass-through entities to avoid the double taxation of C corporations: A C corporation pays entity-level income tax and then shareholders pay tax on dividends — and on capital gains when they sell the stock. For pass-through entities, there’s no federal income tax at the entity level.

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