Scott Herckis is a financial advisor and accountant with over 25 years of experience, working in the finance departments for companies like London Fog and Tory Burch. After founding SJH Financial in 2009, Scott Herckis has focused on helping small and medium-sized businesses with their accounting and financial operations, including tax planning and management.
Small businesses can operate under various structures, such as sole proprietorships, partnerships, LLCs, S- or C-corporations. Most structures elect the pass-through taxation where the owner pays the company's taxes except C-corporations. Roughly 95 percent of United States businesses are pass-through. The tax rates for these entities vary depending on their income, with rates ranging from 10 percent to 37 percent.
On the other hand, C-corporations and LLCs incur a fixed tax rate of 21% after the Tax Cuts and Jobs act in 2017. Further, in order for owners of the C-corp to take money out of the business, they must declare a dividend, which results in additional taxes, typically another 15% on top of the 21%. This means that small businesses pay far fewer taxes than if they file as C-corporations. The qualified business income (QBI) deduction somewhat muddles the benefits of changing tax status due to variable rates of returns based on income brackets. It's best to understand the updated tax information and perform a cost-benefit analysis before electing a tax structure.
Small businesses can operate under various structures, such as sole proprietorships, partnerships, LLCs, S- or C-corporations. Most structures elect the pass-through taxation where the owner pays the company's taxes except C-corporations. Roughly 95 percent of United States businesses are pass-through. The tax rates for these entities vary depending on their income, with rates ranging from 10 percent to 37 percent.
On the other hand, C-corporations and LLCs incur a fixed tax rate of 21% after the Tax Cuts and Jobs act in 2017. Further, in order for owners of the C-corp to take money out of the business, they must declare a dividend, which results in additional taxes, typically another 15% on top of the 21%. This means that small businesses pay far fewer taxes than if they file as C-corporations. The qualified business income (QBI) deduction somewhat muddles the benefits of changing tax status due to variable rates of returns based on income brackets. It's best to understand the updated tax information and perform a cost-benefit analysis before electing a tax structure.
