Tax Cuts & Job Acts- Choice of Entity Considerations- John Skakun, CPA, Tax Partner
The new Tax Cuts & Jobs Act allows businesses other than C Corporations to have a 20% deduction on their qualified business income.
C Corporations pay income taxes on profits directly from the C Corporation. All other businesses including pass-through businesses like Partnerships and S Corporations pay income taxes on profits on their individual income tax return.
When the Tax Cuts and Jobs Act reduced the C Corporation tax rate to a flat tax rate of 21% they had to do something for pass-through businesses. Just as a reminder, after paying the tax on profits C Corporation owners have to pay an additional tax on dividends to distribute cash out of the business.
That was their logic and as a general rule, it makes sense. Unfortunately, there are many complexities in the bill that could cause exceptions. If you are a business owner and if you have any questions about what is the best entity to be using for your business or if you have any additional tax questions we at Hall, Kistler & Co would be happy to help you. Give us a call at 330-453-7366 or contact me directly by clicking the link on my name above.