The Popular Passion for Pass-Through Entities May Be Kaput: Choice of Entity After the 2017 Tax Act
The 2017 Tax Act introduced major changes to the U.S. federal income taxation of business entities. The C corporation tax rate dropped from a painfully high 35% rate to a more congenial 21% rate, thus ending, for now, the embarrassing stampede of U.S. companies to offshore jurisdictions. Meanwhile, the "qualified business income deduction" (QBI deduction) provides a major reduction in the tax rate imposed on U.S. domestic pass-through entities – which is to say, the tax rate for almost every privately owned U.S.-based business.
With all these changes, the operative question is: “Which entity is now better?” The short (lawyerly) answer is: "It depends." The longer answer is: "The analysis is interesting, complicated, often times counterintuitive, and in almost all cases the analytical process no longer produces a simple or 'knee jerk' answer."
Our knowledgeable and experienced panel of experts "kicked around" the pros and cons of C corporations, S corporations, LLCs, and other business entities and discussed how to pick the "right" business entity to fully exploit all the generous benefits of the new tax regime, particularly the complicated but potentially lucrative QBI deduction.