Exclude 100% of your gains

For decades, the best tax structure for most small business corporations was an S Corporation. But proposed tax law changes could offer other options and usher in the new era of C corporations for small businesses.

An S corporation is a flow-through entity with all corporate taxable income taxed to the individual shareholders. A C Corporation is a separate taxpaying entity with residual corporate earnings passed through to shareholders in the form of dividends. With a C Corporation, earnings are first fully taxed inside the corporation and then, the residual distributed to shareholders, where it is taxed yet again.

Now, with tax reform on the horizon and a push to lower the corporate tax rate, current tax savings on C Corporation earnings could be substantial if the corporate rate drops to 15% and the top individual rate only drops to 33%. That's an 18% difference — $18,000 more on $100,000 of income.