Should You Switch To A C Corporation Under The New Tax Law?
One of the most widely discussed aspects of the Tax Cuts and Jobs Act (TCJA) has been the reduction in the corporate tax rate from a top rate of 35 percent to a flat rate of 21 percent. This change prompted many business leaders to consider whether switching from a pass-through entity to a C corporation is the way to go, or if the benefits of the new qualified business income deduction for pass-through entities would make up the difference.
While the tax rate reduction does present potential tax savings for the business and its owner, 这种转变可能会产生长期影响. Many have concluded that it may make sense to forego the short-term tax savings to better align with long-term objectives.
供你考虑的四个问题
Perhaps the biggest takeaway when considering an entity conversion is that all business situations are unique, and this decision should be thoroughly evaluated before moving forward in any direction. Small details that have little impact on one aspect of your decision may end up playing a major role in how another decision is made. Unfortunately, digging into these details can be costly and time-consuming. We’ve identified four questions you should ask before deciding whether a shift in entity type makes sense.
Still Wondering If Changing Your Business Entity Is A Good Move?
听...... 集119《比较靠谱的赌博软件》 & 流式实体” 不适合在意图电台播放 to hear Christopher Axene break down this portion of the TCJA.
需要考虑的四个问题
- 你盈利吗??
因为税是按利润支付的, 如果你只有很少的利润或没有利润可以纳税, the potential savings a change in entity could generate would probably not outweigh the time, 实际做出改变的努力和成本. The more profit there is to tax, the more potential there is for a reduction in tax paid. - 你的资产负债表在水面上吗?’
If your balance sheet is “above water,” it’s reflecting more assets than liabilities. If it’s “under water,” it’s showing more liabilities than assets. When considering a change of entity, your balance sheet should be above water. 这取决于您的企业现有的实体类型, conducting a change of entity with an underwater balance sheet could trigger a taxable event, 与减少税收负担的目标背道而驰. - Does A Substantial Amount Of Profit Generated By Your Business Stay In Your Business?
从历史上看, C corps weren’t a preferred entity of choice for small businesses because of the double taxation on profits distributed to the owner. 可能被遗忘的, 然而, is that the second layer of tax isn’t actually imposed until the profit is distributed from your business to you (the owner) as dividends. If the profit never leaves the business, the second layer of tax is never incurred.
There are a number of reasons you may choose not to distribute profits to yourself, but two of the most common are high rates of capital reinvestment into the business and the repayment of debt. Both of which are usually undertaken to support growth within the business. 如果这听起来像你的场景, the new lower tax rate at the corporate level may generate substantial tax savings on the amount of profit being used for these purposes.
另一方面, if your tendency is to distribute large portions of business-generated profit, 切换到C公司可能不适合你. Any distribution of profit as a C corp dividend would be subject to that second layer of tax at the individual level, possibly eliminating any benefit generated by the lower corporate rate. - Do You Plan To Retain Long-Term Ownership Of Your Company?
If you’re planning to sell your business in the next few years, it’s better to operate as a pass-through entity rather than a C corp, 尤其是涉及到公司资产的时候. This isn’t as critical if the transaction is structured as a sale of corporate stock, but such a transaction usually isn’t as lucrative when compared to purchasing a company’s assets, 包括商誉.
Once you’ve transitioned, you must retain C corp status for at least five years. 另外, the IRS imposes an additional five-year waiting period to avoid a business-level tax on the sale of assets if a change is made back to a pass-through entity from a C corp. This means that if you were to sell your business’s assets during the 10 years after you elect to become a C corp (at a minimum), 你将为所有的收益纳税. 这包括折旧回收, at the business level first and then again when the proceeds are distributed from the company to you as a dividend. Being subjected to two layers of tax would be much less advantageous when compared to the single layer of tax you would pay on the same transaction if your business was a pass-through entity the entire time.
这些问题只是冰山一角. If you need help determining your business’s best course of action, 接触的意图 & 比较靠谱的赌博软件 了解更多信息.
安德鲁·盖瑟，注册会计师(米勒斯堡办事处)