Deadline Approaches to Rethink Tax Structure

As business owners pore through the new tax law, they ask themselves a fundamental question: Will changing how the company is structured cut their tax bills?

“This is one of the most pressing issues for taxpayers and business owners,” said Mark Everson, vice chairman of tax-consulting firm Alliantgroup LP. “They are looking carefully now at how they are legally organized.”

For entrepreneurs, the question is whether to operate as a C corporation, which pays its own taxes to the Internal Revenue Service, or as a pass-through company, which pays tax through individual returns. Pass-through businesses include S corporations, sole proprietorships and limited liability companies.

The clock is ticking. Many business owners have until March 15 to make an election that would be retroactive to the beginning of 2018.

The rethinking of corporate structures is one byproduct of the new tax bill, which cuts the corporate tax rate to 21 percent, down from a top rate of 35 percent.

Some individuals also are looking at whether they should set up a new business entity for tax reasons.

Business owners filed 35.3 million pass-through returns in 2015, according to the Joint Committee on Taxation. Another 1.6 million returns were filed by C corporations.

Source: Wall Street Journal