Sherman & Howard, LLC has made available on its website an article, the first in a five part series, on how to choose a business entity after the enactment of the Tax Cuts and Jobs Act. The article begins as follows:
Since the reduction of individual tax rates in the 1980’s, the decision of whether to conduct a business in the form of a C corporation or in the form of a “flow-thru” entity (i.e., partnership, limited liability company or S corporation) has been a fairly easy one. Because of the lower individual tax rates, the relatively high corporate tax rate and the “double tax” on C corporations — (i.e., once at the corporate level and a second time at the shareholder level), distributed profits of a C corporation generally have been subject to tax at rates far in excess of the rates applicable to a flow-thru entity. As a result, a flow-thru entity has almost always been the best structure to use for a non-publicly traded business. (Publicly-traded businesses generally are not eligible for flow-thru treatment.)
Because of the changes described below that have been made under the Tax Cut and Jobs Act (the “Tax Act”), the choice for a non-publicly traded business between using a flow-thru entity or using a C corporation will no longer be as simple as it once was. Instead, under the Tax Act, businesses will be required to consider a number of factors (and perhaps undertake some mathematical “modeling”) in order to determine the type of business entity that will result in the lowest tax burden.
Posted by Lewis J. Saret, Co-General Editor, Wealth Strategies Journal.