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New Tax Law Prompts Companies to Consider Corporate Changes

On Behalf of | Aug 31, 2018 | IRS Issues

S corporations have in recent years seen increasing popularity as the choice by many Atlanta, Georgia small business owners for the type of corporation they will establish for federal tax purposes. Although both the traditional C corporation and the S corp establish a separate entity and provide limitations on liability, the primary difference between the two is in how they are taxed.

In an S corp, taxable income flows directly to the shareholders at their applicable tax rate based on their ownership share in the company. Taxable income in a C corp is taxable directly to the corporation. Individual shareholders are then taxed on dividends paid by the corporation. This double taxation of C corps has been a primary reason for the surge of S corp filings.

With the passage of the new tax law, which provided for a reduction in the top corporate tax rate from 35 to 31 percent, many businesses are considering whether it’s beneficial to change from S to C corporation status. The IRS has offered some guidance concerning how companies may have to alter their accounting methods on this complex tax issue. The reduced tax rate appears to make C corporations worth a second look by business owners.

When a business owner contemplates any issue related to taxes, it is prudent to do so with the goal of avoiding the possibility of an IRS audit or tax examination. But if that is not possible and the IRS is already involved and is suggesting a tax lien or wage levy, it may be time to get professional assistance. A tax law attorney might help explain the legal issues, the potential exposure and work towards a resolution that provides the best result possible under the circumstances.