If you are a business owner with an S-Corp designation, you may want to consider changing to a C-Corporation designation thanks to the Tax Cuts and Job Act. These changes could mean more money in your pocket thanks to the new 21% flat tax rate on C-Corporations.
These two business structures offer benefits in different ways. The taxable earnings of C-Corporations are first taxed through the company. The shareholders are taxed after the earnings are distributed as dividends. As for S-Corporations, the corporate tax is passed on to the shareholders through income, losses, deductions, and credits on their personal income taxes. Rather than paying a corporate rate, they pay taxes at the individual income rates. The advantage of choosing an S-Corp designation is the ability to avoid double taxation at the corporate level. However, S-Corporations are responsible for tax on certain built-in gains and passive income at the entity level.
Two changes from the new tax law affect a corporation’s ability to revoke an S-election over a C-election:
Changes that only apply to a C corporation are:
Please seek counsel from your qualified tax advisor before taking any action.