Thinking of changing from a pass-through to a C-corp in light of tax reform? It’s a complex decision that comes with long-term and potentially permanent consequences. As you consider an entity change, model multiple assumptions. Factor in the corporate tax cut, but also give due weight to existing deductions, and consider future possibilities — account succession, estate planning and a sale.
Looking through a tax reform lens to the next 10–20 years will help you envision your company’s development. If yours is a family business to be taken over by the next generation, will it succeed as a pass-through in those new hands? If you’re counting on selling, what might the entity structure look like to a prospective buyer? Would a buyer be seeking a basis step-up in asset appreciation, or would a purchase of the entire entity wholesale, as a stock sale, be more attractive? A buyer would scrutinize the tax profile as well as cash flow for family gifting, charitable donations and trust planning. These are all critical elements in deciding about a pass-through entity change.
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