Choice of Business Entity


Welcome to this week’s installment on business taxation. Head over to our Youtube channel and take a look at these pieces from SBA.gov, Entrepreneur Magazine, and Business News Daily to dive deeper.

This week, we want to talk a little bit more about your choice of business entity. Even if you’re not starting a new business, sometimes you can change your business entity to take advantage of certain rules or laws. We remember in back in the 90’s in when Tennessee first passed the LLC Act, and when they did that, they had failed to make the franchise excise tax applicable to an LLC. So for four or five years, all of our clients we changed from S Corporations to LLC’s, where they could completely avoid any Tennessee level corporate tax. Of course they closed that loophole, and most of them stayed LLC’s and just paid the tax they’d been paying all along. Some of them went back to be an S Corp.

Similarly, when we had the tax cuts and Jobs Act in 2018 ,when they brought the corporate rate down, most small businesses went through the analysis of whether or not they should go back and be C Corporations or S Corporations or LLC’s. Many chose to go back to being C Corporations because of the balancing of the tax burden between the two types of entities. Actually we may be facing that situation again with the Biden administration talking about raising corporate taxes back up. Many businesses may want to change.

Changing your type of business entity is not something done lightly. If you’re going from an S Corporation to a C Corporation, that’s fairly easy and doesn’t involve changing the legal entity, but your choice of business entity impacts more than taxes. It has to do with liability protection and how you want to raise capital and all kinds of factors like that. These are the kinds of issues that we can help you with and analyze here at Harvard Grace, so we’d love to talk with you about that. Give us a holler anytime!

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