General – The Choice of Entity Decision Prior to 2018
Since the reduction of individual tax rates in the 1980’s, the decision of whether to conduct a business in the form of a C corporation or in the form of a “flow-thru” entity (i.e., partnership, limited liability company or S corporation) has been a fairly easy one. Because of the lower individual tax rates, the relatively high corporate tax rate and the “double tax” on C corporations — (i.e., once at the corporate level and a second time at the shareholder level), distributed profits of a C corporation generally have been subject to tax at rates far in excess of the rates applicable to a flow-thru entity. As a result, a flow-thru entity has almost always been the best structure to use for a non-publicly traded business. (Publicly-traded businesses generally are not eligible for flow-thru treatment.)
Because of the changes described in our five-part series that have been made under the Tax Cut and Jobs Act (the “Tax Act”), the choice for a non-publicly traded business between using a flow-thru entity or using a C corporation will no longer be as simple as it once was. Instead, under the Tax Act, businesses will be required to consider a number of factors (and perhaps undertake some mathematical “modeling”) in order to determine the type of business entity that will result in the lowest tax burden.
For more information on this topic, please contact:
Denver Mike Dubetz 303.299.8464 firstname.lastname@example.org
Denver Steven Miller 303.299.8144 email@example.com
Denver John Birkeland 303.299.8225 firstname.lastname@example.org
Aspen Joe Krabacher 970.300.0123 email@example.com
Sherman & Howard has prepared this advisory to provide general information on recent legal developments that may be of interest. This advisory does not provide legal advice for any specific situation and does not create an attorney-client relationship between any reader and the Firm.
January 4, 2018