Many factors are involved when choosing a business entity
Whenever there’s talk of tax reform, it’s a good time to look at your current business entity structure. Or, if you’re starting a new business, it’s wise to take possible changes into account when making your decision. 415 Group Partner Chad Isler, CPA, MT, explains the importance of aligning the structure of your business with your goals.
When choosing a business entity, there are two primary directions you can go – a C corporation or a pass-through entity. There are a variety of tax and non-tax related factors that go into selecting the business entity that works best for you. Some of these considerations include the expected use of future profits, whether there is debt on the balance sheet, and differences in available tax rates and deductions at the corporate level versus at the individual level. However, when tax reform is on the horizon or changes have recently been enacted, the tax-related factors inevitably come to the forefront.
It’s important to build a strong relationship with a trusted advisor to help navigate these issues. The value a CPA can provide is derived from building a history of knowledge related to understanding your business, future goals, and family dynamics. They will be able to link this knowledge with how proposed or enacted tax law changes should be used to provide the most tax-efficient structure for your business. Your accounting team—whether internal or external—should be proactive in looking for ways to help your business. They should assess possible changes and their potential effects on your business. These efforts will help guide you toward a change or the security in knowing that proceeding forward under the current structure is best.
Changing your tax structure is typically a multi-year commitment. However, circumstances that led to the original decision can and will change over time, so it is important to consistently monitor your options as your business and tax laws evolve. If you’re interested in assessing your business structure and the considerations related to possible tax reform, reach out to us at 415 Group today.