Revoke S Corp, Back to C Corp
Posted October 3, 2018
The hot question since the passage of the Tax Cuts & Jobs Act of 2017 and Section 199A is, “Should I revoke S Corp status and go to C Corp?” The answer is No.
|S Corp Income||100,000||200,000||300,000|
|Total Tax S Corp||13,100||36,390||62,626|
|C Corp Income||100,000||200,000||300,000|
|C Corp Tax||21,000||42,000||63,000|
|Total C Corp Tax||21,000||65,700||107,556|
|Effective S Tax Rate||13.1%||18.2%||20.9%|
|Effective C Tax Rate||21.0%||32.9%||35.9%|
|Delta (extra tax because of C Corp)||7.9%||14.7%||15.0%|
Assumptions included Section 199A deduction for the S corporation’s shareholder plus $24,000 in standard deduction, in addition to the 3.8% surtax on top of the 15% capital gains tax rate for the $300,000 column. As you can see, a C Corp does not make sense after you add in capital gains tax on the dividends. This in turn makes sense- the lawmakers didn’t set out to kill S corporations. They set out to give every business owner a tax break. Geez… half of Congress (535 doesn’t divide evenly, we get it) probably run S corporations on the side.
Taxpayer’s Comprehensive Guide to LLCs and S Corps : 2019 Edition
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