Reviewing Business Structure in Light of Tax Changes

The difference between personal and business tax rates is a factor that often influences a business owner’s choice of organizational structure. Thus, recent tax changes make it a good time to recalculate and evaluate your options.

C corporations are taxed at the corporate tax rate, which was permanently cut from a top rate of 35% to a flat 21% starting in 2018. However, owners must pay a second tax on any dividend distributions they receive.

With pass-through businesses such as sole proprietorships, partnerships, and S corporations, profits flow to the owners, who are taxed at individual income tax rates. Individual rates were also reduced, but only for 2018 through 2025, and the top rate is currently 37%.

A flat 21% tax rate may seem like a good reason to convert to a C corp, especially if your income falls into the upper tax brackets for individuals, but there are other factors to consider.