Saturday, February 24, 2018
Wall Street Journal, Pass-Through Businesses Are Rethinking Their Status in Wake of Tax Law:
As business owners pore through the new tax law, many are asking themselves a fundamental question: Will changing how their company is structured cut their tax bills?
“This is one of the most pressing issues for taxpayers and business owners,” said Mark Everson, vice chairman of tax-consulting firm Alliantgroup LP. “They are looking carefully now at how they are legally organized.”
For many entrepreneurs, the big question is whether to operate as a C corporation, which pays its own taxes to the Internal Revenue Service, or as a pass-through company, which pays tax through individual rather than corporate returns. Pass-through businesses include S corporations, sole proprietorships and limited liability companies.
The clock is ticking. Many business owners have until March 15 to make an election that would be retroactive to the beginning of 2018.
The rethinking of corporate structures is one byproduct of the new tax bill, which cuts the corporate tax rate to 21%, down from a top rate of 35%, though owners pay a second tax on profits distributed as dividends. ..,
The top individual tax rate has been lowered to 37% from 39.6%, and owner of many pass-through business can deduct 20% of pass-through income, reducing the top effective rate to 29.6%, though not all qualify for that deduction.