Aldrich Law Firm, Ltd.
Aldrich Law Firm, Ltd.

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Changing business structures to adapt to the new tax bill

Citizens of Nevada may be aware that Congress passed a new tax reform bill that is supposed to take effect at the beginning of 2018. This bill brings with it change to the business world and is expected to disrupt finances, especially when it comes to business planning.

The biggest reason this bill is expected to upset current business practices is its reduction of the maximum corporate tax from 35 percent to 21 percent. This whopping reduction in taxes owed to the government is made with big corporations in mind, such as C corporations, rather than pass-through entities, such as LLCs and S corporations. The new bill does offer some tax relief to the pass-through entities; however, the benefits are more pronounced for C corporations. As a result, the natural question facing several small companies is whether they should change their business structure into a C corporation.

There are several factors to take into consideration when making this decision. To start with, not all states in the U.S. allow for statutory conversions, including New York and Arizona. States like Nevada and Texas offer companies more flexibility through allowing statutory conversions.

Another thing to look out for is the fact that C corporations are subject to double taxation, which could eat at the gains made by a small company converting. One big factor that weighs into the decision is how much money a company stands to save by converting versus how much money will be lost to double taxation.

There are many cogs and gears involved in business formation and planning, among which are filing a set of articles, drafting corporation bylaws, choosing corporate officers and holding annual board meetings. A business owner contemplating the switch may desire the aid of professional legal consultants. It is worth pointing out that the involvement of lawyers has its costs, hence emphasizing the importance of picking legal representation carefully as well as factoring in this extra expense when considering a change.

John P. Aldrich
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