Are you planning on forming a new business entity? If so, will you be getting the best tax deal? With possible, yet uncertain tax reform on the horizon, the C-corporation could be a better choice.

It’s good to know exactly how you might benefit with your entity choice, particularly should the tax laws or economic conditions of your business shift. As it stands, several factors are making the C-corporation a more attractive option.

Here’s how it breaks down.

The Limits of S-Corporations

Though an S-corp election has been a popular choice in the past for many, the shifting economic landscape has many business owners with S-corps to seek an alternative.

Recent reasons include:

Possible (but not confirmed) tax rate changes.

Though it is all speculative at the moment, possible changes may dramatically favor C-corporations by eliminating double taxation.

Flexibility in seeking investors.

The rise of crowdfunding has made it an attractive option for raising money. However, an S corporation is limited to 100 shareholders, which practically eliminates crowdfunding as an option. The shareholder limit also prevents an S-corp from offering an IPO.

How Health Coverage is handled.

S-corps are required to report any health care coverage paid by the company as taxable income for owner/employees. C-corps are not bound by this rule, and may offer health coverage to owner/employees with no taxes. 

The Possible Limits of an LLC

One of the biggest benefits of an LLC is that they protect the business owner from personal liability and have favorable tax rates, similar to a partnership. However, several factors are making some LLC holders consider a C-corp.

Here’s what they are thinking:

Potential lower tax rates.

Though tax reform has not passed yet, nor are specific proposals on the table, there is an expectation that C-corporations may have lower tax rates under a reform plan, even if double taxation is not eliminated.

Section 1202 exclusion.

Under section 1202, sale of qualified small business stock held for more than 5 years is exempt from gross income tax. This could equate to a zero-tax on the sale of a C-corp business, if it qualifies.

Additional tax deductions.

C-corps offer several deductions that are not available to either an LLC or an S-corp.

Need to Know More About the Tax Liability of Your Entity Choice?

Though a C-corp may look like an attractive option, it’s best to know for sure if it might be right for your business. Need help knowing what to expect with tax liability for entity choice? PDM’s tax experts can help advise you on the best course of action. Contact us; with our years of technical experience, advanced training, and cutting edge technology, we are your financial partner.