Choice of Entity considerations post-tax reform

Choice of entity is undoubtedly a discussion for practitioners currently meeting with clients for tax return preparation. Clients are confused as to which structure–C corporation or S corporation–is best suited for their entity after tax reform. The Tax Cuts and Jobs Act lowered the tax rate for C corps to 21%. Moreover, the new §199A 20% deduction is offered only to pass-through entities. Choosing the right business entity has always been complicated. Now it’s even more so. What should practitioners consider to avoid costly mistakes regarding choice of entity post-tax reform?

The reality is that the basic choice for a new or existing business is fraught with potentially costly tax implications. A conversion to a C corp, for instance, must anticipate the corporate tax on distributions and the rules on undistributed corporate earnings. On the other hand, any S corp planning must look at the requirements of the S election. I can recall a number of situations where the death of a qualified shareholder jeopardized the S election since stock passed to unqualified trusts. There are many, many other considerations necessary for effective choice of entity decision making, and it is certainly not simply a decision based on the competing tax rates.

Because the new legislation made it even more challenging to select the right choice of entity, Surgent’s team of experts developed a new webinar, “Choosing the Right Business Entity Post-Tax Reform.” This course is ideal for any accountant or other business advisor who needs to help clients choose the most advantageous business structure. Click here to learn more and register.

Nick Spoltore is Senior Director of Tax & Advisory Content for Surgent CPE. Mr. Spoltore is a graduate of the University of Notre Dame and of Delaware Law School. Before joining Surgent, he practiced tax and business law at the firm of Heaney, Kilcoyne in Pennsylvania and also in Delaware.

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