Should Your Business Restructure as a C-Corporation In Light of the New Tax Law
The Tax Cuts and Jobs Act (TCJA), which became effective January 1, 2018, was purportedly enacted to provide tax relief to businesses and thereby stimulate economic growth. Small businesses are the life blood of the United States’ economy, accounting for ninety-nine percent of all businesses, and half of the country’s jobs and gross domestic product. However, most small businesses do not qualify for the most significant financial relief afforded under the Act—i.e., the new maximum corporate tax rate of 21 percent versus the previous 35 percent rate—because approximately seventy-five percent of small businesses are structured as pass-through entities such as limited liability companies or S corporations whose profits are taxed according to the owner’s personal rate, which can range from 10 to 37 percent under the new tax law. In addition, the new maximum corporate tax rate of 21 percent is written as permanent while the personal tax rates are temporary and will expire at the end of 2025. As a result, we have received numerous inquiries from small business owners considering whether to reorganize their businesses as C corporations in order to take advantage of the lower, “permanent” corporate tax rate. Continue reading