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Rethinking Entity Choice

Rethinking Entity Choice

Rethinking Entity Choice In Light of Tax Cuts And Jobs Act

Source: TaxConnections

Until the inception of the Tax Cuts and Jobs Act, entity selection by businesses was a fairly easy decision. In most cases, businesses chose a form of pass-through entity, given the high tax rate of thirty-five percent given to C corporations in the past. With the new changes brought forth in TCJA, and the lower tax rate of twenty-one percent, change is in the air. But what are the benefits of considering C corporation status? Unless you are a very large company, determining if you should change from a pass-through structure to a C corporation will not be an easy one. 

A pass-through entity is a business structure that is used to reduce double taxation. They are not subject to income tax on the corporate level. The owners of these entities are taxed on the direct flow-through of their portion of the net income of the business on their personal federal individual Form 1040 return. Pass-through entities are made up of sole proprietorships, partnerships, S corporations and Limited Liability Companies (LLC).

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