Former President Donald Trump, fresh off surviving an assassination attempt, is right back to pushing to enact policy that will help the American people. He would like to push for a reduction in the federal corporate tax rate from 21 percent to 15 percent if reelected.
On a MACRO level, articles have discussed how this would make US an attractive location for business investment, and a way to lure back companies that have moved operations overseas. This in theory would also simulate job growth as Companies that are already operating here can afford to hire more personnel and the companies that decided to come back to the US will need a workforce as well.
The impact is also felt on a MICRO scale, those of us that are self-employed, sole proprietors, LLCs or S-corps might have to re-evaluate the corporate tax structure of our enterprise. If a C Corp is taxed at 15 percent, it opens the door to the possibility that you may pay less taxes and retain more income by switching your current operation over to a C Corp. Several things would need to be factored in and it is advised that you consult with a Tax Attorney, who could help you navigate both the economic and legal implications of this move. Some considerations would be:
- S Corp: Avoids double taxation. Profits and losses pass through to shareholders’ personal tax returns. This can be beneficial if the company’s income is low and you want to avoid corporate tax rates.
- C Corp: Subject to double taxation. The corporation pays taxes on its profits, and then shareholders pay taxes again on dividends they receive from the corporation.
· C Corp will have additional requirements for compliance but will have more flexibility as far as ownership structure and profit distribution. The ability to pay shareholders dividends factored in with the being taxed at the corporate level at 15 percent vs as ordinary income once it is distributed to the members of a S Corp/LLC could potentially unlock a huge benefit for your operation.
IF the policy goes into effect it is imperative that you consult with a tax profession to determine if it is time to change your corporate structure.
