On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act (“TCJA”) which provides a series of new tax benefits to different entities in the form of lower tax rates (21% federal income tax rate for C corporation) or additional tax deductions (20% qualified business income deduction for non-C corporation entities). These tax benefits offer a once-in a lifetime benefit to taxpayers and require careful study to determine the optimal outcome for each organization, i.e., achieve lowest income tax rate and/or liability. For all U.S. entities and those that intend to invest in the US, the examination required focuses on the business’ characteristics and future plans. As expected, the complex nature of the tax law changes justifies a more than a cursory review of the rules to ensure that an organization captures of the full benefits of the TCJA. Each of the tax benefits includes a number of requirements and limitations that require careful study to conclude an entity can fully enjoy the obvious benefits. A high-level review might not reveal the TCJA imposed limitations on the various tax benefits that can lead to a different conclusion as to the entity selection.
After ensuring an entity qualifies for the benefit, then additional analysis should be undertaken to assess whether an alternative entity(ies) may in fact yield more benefits. A number of factors may affect the ultimate selection of the entity-type or formation of a group of entities (hybrid) including:
· Industry and lines of business(es)
· Capital investment and reinvestment needs of business
· Financial interests of the owners
· Domestic versus international operations
· Other business requirements (future exit, etc.)
Wells Tax possesses a team ready to help make sense of these new laws for you and prepare a tax model of potential tax benefits that a company and its owners may enjoy. With the significant change made to the US tax laws, it is the perfect time to review and consider whether your current organization is operating in the right entity structure and learn the breadth of the benefits available. Please contact me at 703-303-7898 to discuss this further.