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Time to Reconsider Your Business Structure to Take Advantage of New Lower Tax Rates

There has been a lot of discussion about Trump’s proposed tax revisions. No matter what your politics, the changes are coming soon and are dramatic enough that they merit a second look at your business structure to see if a change could reduce your tax burden. Not all businesses will benefit from a change, but some will, and you don’t want to miss out on what could be substantial tax savings.

The top corporate tax rate will be reduced from 35% to 20%. This applies to businesses being taxed as “C-Corps.” Thus, successful businesses with a healthy income will pay less corporate income tax. Clearly, this favors Big Business, but there could be some savings for smaller businesses. Keep in mind that Income tax rates are graduated so lower income businesses will have a lower tax reduction since they are not at the top tax tier rates.

What you need to do: talk with your tax advisor and explore if switching to a C-corp will net you a significant tax saving. If you are currently an LLC, you will need to balance those savings against the cost to make the change In terms of filing fees for new entities and in some cases, new licenses. If you are an S-corp, the change is a simple tax election that you make once a year. You would need to do this soon for 2018 so don’t wait to have this conversation with your tax advisor!

For the many businesses that have what is called pass-through taxation (LLCs taxed as partnerships and those businesses electing S-Corp status), the rate will be capped at 25%. Currently, the top individual tax rate is 39.6%. This would be a tax saving for high performing breweries. Your individual tax rate will play a key role in whether you would benefit from changing to a C-corp. The new tax scheme would have 4 tax brackets: 12%, 25%, 35% and 39.6%. There is a new 9% rate that will be applied to the first $75,000 of income made by owners making less than $150,000.

What you need to do: have a conversation with your tax advisor to see if you need to make a change in your corporate structure before the New Year to take advantage of these tax savings.

You don’t want to disrupt your business operations or revenue stream. This type of transition can be disastrous if done incorrectly so be wary of quick solutions that are not comprehensive. If you need assistance in transitioning your company to a new business structure, contact our team for a strategy call.

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