Surprising Change for S Corporations Under Trump Tax Plan


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There is a lot packed into the new 2018 Tax Act. Here’s one thing that you might have missed.

If you have a business, you likely have heard about S Corporations already. They are often the best structure for businesses that are just getting started. Since they are a pass through entity, any losses can flow through to your personal return. You can more easily take distributions (dividends) from an S Corporation.

As we become a more global economy, though, foreign residents investing in the US businesses have met a problem if they tried to be part of an S Corporation.

That was then! It all changed with the 2018 Tax Act.

In a huge change with S Corporations and who can own them, Congress has reversed a long-standing rule. Foreign residents can now own S Corporations. However, it’s not completely straightforward.

Under prior law, an electing small business trust (ESBT) may be a shareholder of an S Corporation. That part is still the same. In the past, the only eligible beneficiaries were individuals, estates and certain charitable organizations eligible to hold S Corporation stock directly. A non resident foreign individual could not be a beneficiary of an ESBT.

Under the new Tax Act, effective on Jan. 1, 2018, a nonresident foreign individual can now be as a beneficiary of an ESBT. This a huge change in tax law, likely as a response to the emerging global economy.

If you’re not a foreign resident, you might wonder why this applies to you. The answer is actually simple. You can now attract more investors to an S Corporation. It means your business possibilities just became bigger.

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