If you’ve been paying attention to the news, then you know that the way you handle tax planning for your business may soon change in a very big way. In fact, depending on what happens, it may actually be worth it to change the very structure of your flow-through entity.
2 Ways Tax Planning May Change for Your Flow-Through Entity
A “flow-through” entity is a company wherein the owner only pays taxes on the money they make from that business in the form of their income tax. There is no corporate tax to pay on top of that. Flow-through entities include S-corporations, partnerships, and LLCs.
At the moment, the top marginal individual rate sits at 39.6%. However, the proposed reforms could potentially reduce that amount to just 25%.
Here are the two ways that the potential plan could affect your flow-through entity.
1. Switching to a C-Corp May Save Your Company on Taxes
One possibility is that flow-through entities won’t see the same kinds of protections as C-Corps. As a result, we may see a flood of flow-through companies looking to transition into C-Corps to limit their exposure. You might want to consider doing the same.
Obviously, if you decide to, this will have a huge impact on how you handle tax planning and for your business. While it may mean paying less in taxes, you would need to make a number of other changes, too.
2. The House and Senate Come Together to Provide Clear Answers
At the moment, one of the main problems facing business owners who are trying to prepare for potential cuts is that we aren’t sure what’s going to happen. There are two very different possibilities coming from the House and the Senate.
A second option that would affect your company’s tax planning is that the two will actually come together and provide very clear information about how flow-through entities will be taxed in the future. Even if the answers are complicated, that’s at least something we can all work with.
How to Adjust Your Tax Planning
At the moment, there’s really nothing you should do. The proposed changes are just that: proposed. Nothing has gone into effect yet, so making any major changes to your business would be premature.
However, one thing you can do to make the most out of whatever happens is seeking professional help from accounting and tax planning experts.
The team at Marshall, Wazcheka and Patrick, CPA would love to give you peace of mind by preparing your business for the future, whatever it might bring. Contact Us today and let’s talk about the many ways we can help your company now and for years to come.