Before the 1986 Tax Reform Act, most business owners used C Corporations. That all changed with the big tax change of 1986. Through 2017 most business owners used S Corporations.
But maybe it’s time to change! The Tax Cuts and Jobs Act (Trump Tax Plan) gave us two big changes that suddenly made a C Corporation the most desirable structure, in the right circumstances.
Let’s look at those changes first and then we’ll go over a couple of strategies you may want to consider right now!
Change #1: The C Corp tax rate is now 21%. Flat rate. There are no brackets. That’s as high as it gets. This is a big change for people who operate business and don’t take out every dime they make for personal expenses. You can now build up cash for investing in the business and other things at no more than a 21% flat tax rate.
If your current taxable income is under $315K or $157.5K, a pass-through entity might still be the best choice. Over that, you may want to consider a C Corp.
Change #2: There is no longer a penalty for using a C Corp structure to operate your Professional Service Corporation. THIS IS HUGE! Well, maybe because it applies to me but it actually applies to a lot of us. This change means medical professionals, lawyers, engineers, architects, accountants and other skilled professional consultants can now use C Corps.
In fact, it could be the BEST structure for a high income professional that has an income is over the second taxable income threshold ($415K for married or $207.5K for single) and can’t get the 20% income reduction. If you’re in this category and don’t need every penny you make to live on, the C Corp could be a great strategy.
There are other benefits for C Corps, of course. For example, the benefits are much better for owner/employees of C Corps than S Corps.
We’ll be covering all of that information in upcoming coaching classes. Get signed up now at: https://www.ustaxaid.com/coaching-program/