Tax Reform: Re-examine your business entity structure

The Tax Cuts and Jobs Act (TCJA) has brought on major tax law change that impacts small businesses. The TCJA enhanced some tax breaks, repealed others and modified several deductions that are likely to affect a majority of business owners. Here’s one change to consider.

Re-examine your business entity structure

When a taxpayer decides to engage in a trade or business, the first choices to be made may be whether to form a legal entity to hold and operate the business and, if so, which type of entity? Since the advent of the limited liability company, a major factor in that decision is the federal tax treatment of the selected entity. Minor changes to federal tax rates may affect the choice of entity decision for those looking to form new entities, but major fluctuations are often necessary to prompt taxpayers to consider the conversion of an existing entity from one federal tax classification to another.

The recent reduction in the corporate income tax rate with the passage of the TCJA to a flat Corporate rate of 21% has reignited the choice of entity debate for both newly formed and existing entities. Given this change—as well as certain changes that may affect the tax rate applicable to the income of passthrough entities or sole proprietorships—it is time to review the various considerations that influence the choice of entity decision from a U.S. federal tax perspective.

If you have any questions, visit with one of our Tax experts.


Published: 9-13-18