S Corporation vs. C Corporation Decision

sign that says S Corp versus C Corp, Gilmore Jasion MahlerWith a new corporate tax rate of 21% now in place, many businesses are asking if perhaps they should change their business classification with the federal government from an “S” Corp to a corporation (sometimes referred to as a “C” Corp) to take advantage of the lower corporate tax rate. Your window for making that decision (and having it take effect for the entire 2018 calendar year) closed on March 15, but you can still make the change.

An S Corp is a “pass-through” entity that passes its income through to the individual level for the purposes of taxation. A corporation would be subject to taxation at the new corporate tax rate of 21%.

Gilmore Jasion Mahler (GJM) tax experts are fielding this S Corp vs. C Corp question from many clients across multiple industries. While it may sound like an obvious move to make, they will tell you that each business must examine the pros and cons of such a move with a trusted tax advisor.

GJM held an education event on the Tax Cuts and Jobs Act and examined the S Corp vs. Corporation question, citing some examples that showed remaining an S Corporation could actually mean lower taxation for some businesses (versus taxation at the new 21% corporate rate).

If your business wanted to revoke your S Corporation election effective January 1, 2018, then you needed to make that decision by March 15, 2018. Now that the deadline has passed, you can still make the change, but you need to be aware that your revocation would be effective on the date indicated in your revocation election to the IRS. For example, if you elect to revoke your S Corporation election on June 30, 2018, you would file a short period S Corporation return for January 1-June 30, 2018. You would then file a Corporation return from July 1-December 31, 2018.

Now is the time to have this important discussion with your tax advisor, as such a move could have significant financial implications for your business. 

Deanna Hall Gilmore Jasion MahlerTax Partner Deanna Hall contributed this blog. Learn about GJM’s expertise in Tax and meet our team. If you're interested in receiving more informational articles and tax strategy ideas direct to your inbox, be sure to sign up for our free GJM tax newsletter Focus. You may also want to consider signing up for some of GJM's free quarterly industry newsletters, including The Manufacturer (for those in manufacturing & distribution), On-Site (construction & real estate), Practice Management Advisor (physician practices and other healthcare entities) and The Expert (with a focus on business valuation and litigation support). You can sign up here for any of GJM's free newsletters.

Established in 1996, Gilmore Jasion Mahler, LTD (GJM) is the largest public accounting firm in Northwest Ohio, with offices in Maumee and Findlay. Locally owned, GJM offers cloud-based accounting services and provides comprehensive services including assurance, business advisory, tax, risk advisory and healthcare management. The Firm’s professionals specialize in industries including construction & real estate, healthcare, manufacturing & distribution and utilities

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