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Navigating the new business tax laws

As a new calendar year gets underway, many companies are turning their attention to how the newly implemented tax laws will play out as they file their 2018 business tax returns. Texas businesses may also decide to reevaluate the form of the entity they are using.

Historically, the tax burden associated with operating a business as a C corporation deterred many companies from creating this type of structure. As a result, the S corporation and the LLC grew to become quite popular in part due to their tax structure which could be more favorable to smaller businesses. That, however, may well change under the new tax code and some businesses may wonder if they should migrate to a C corporation structure.

As explained by MarketWatch, shareholders or members of pass-through entities may qualify for the Qualified Business Income deduction (QBI) on their personal tax returns and this deduction may work in their favor. It should be noted, however, that this deduction is currently slated to be available only through 2025 so longer term planning will be important.

Inc. Magazine also highlights that a company's tax bill may not be the only factor to evaluate when determining whether to change a company's operating structure. The cost to convert from an S corporation to a C corporation may be relatively high. The ongoing costs of maintaining a C corporation structure may also be higher than the costs associated with a pass-through entity such as an S corporation or an LLC as the management may be more complicated.

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