Corporate Tax Reform and Your Business
Lower Tax Rates Could be a Game ChangerThe Trump Administration is expected to announce preliminary components of an overall tax reform package this week.
One such proposal is to reduce the top income tax rate for corporations (so-called "C" Corporations) from 35 percent to 15 percent. This could have a huge impact on businesses both large and small in evaluating the type of entity they can choose to run their business.
C Corporations have generally fallen out of favor as a small business entity, not only because of the high tax rate, but especially the specter of "double taxation". Double taxation occurs when a corporation has to pay tax on its profits, and then the shareholders pay a second tax when those profits are distributed as taxable dividends.
Double taxation can be particularly onerous when a business operated as a C Corporation is sold. The combined tax on the gain paid by the C Corporation, and the second tax paid by the shareholders on the proceeds upon dissolution can approach 50% or more.
For that reason, many small businesses operate in a flow-through entity, such as a "S" Corporation, to avoid this double tax.
Could we be looking at a major shift away from "S" to "C" corporations? It's much too soon to speculate on the exact provisions and timing of a tax reform bill from Congress, but it is certainly something we will be watching closely.
In the meantime, the month of May kicks off our planning season. We think this is a great time to review performance, plan for the future and identify those opportunities for growth and profitability.
We are ready when you are!