If it’s difficult to uproot your business, talk to your accountant about whether it makes sense to change your company’s structure from a pass-through entity to a C-corp.
Under the new tax law, pass-through entities — including S-corps, partnerships and limited liability companies — may qualify for a 20 percent deduction of qualified business income.
These small businesses get their name from the way income and profits “pass through” to the owner’s individual tax return. Pass-throughs are subject to individual income tax rates, which run as high as 37 percent.
Business owners with C-corps can take aggressive deductions — and they’re subject to a corporate tax rate of 21 percent.
“If you’re paying taxes in many different states, you should consider the large state and local income tax deduction that you can get as a C-corp but not as a pass-through entity,” said Mark Nash, a tax partner at PwC.
However, C-corps are subject to double taxation, meaning profits are taxed to the corporation and then levied a second time when shareholders get their dividends.
Your accountant may help you develop a strategy to soften the blow.
“You might be able to avoid the double tax if you reinvest in the growth of the business,” Nash said.