With the impending decrease of the corporate tax rate to 21 percent, is it time to change your entity structure to a C corporation? There is no quick answer to this question. Each taxpayer is in a unique situation that would have to be evaluated in order to make the determination of which taxing structure is proper for that taxpayer. Generally speaking, in 2018 the corporate tax rate will be lowered to 21 percent which is lower than the top individual tax rate of 37 percent. However, double taxation of earnings still exists with corporations, so that when earnings are distributed to the shareholder of the corporation, the effective federal tax rate can be as high as 39.8 percent on those earnings. Comparing this to an individual with flow-through income that may be eligible for the new flow-through deduction, the highest effective federal tax rate on the earnings of the flow-through will be 29.6 percent. At first blush it would seem that being taxed as a corporation makes the most sense, but this is just a starting point in the evaluation process. There are many other factors to consider, which may result in a decision to change your tax structure.
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