S Corporations retain tax advantages over C Corps
Despite higher tax rates, S corporations retain advantages over C corporations. Given that the highest federal individual tax rate is now higher than the corporate rate, it may seem like operating a business through a C corporation rather than a flow-through entity would present a preferable alternative for owners of small, growing businesses. They may reevaluate their decision to elect a classification under Subchapter S and consider such restructuring to take advantage of the lower corporate rate available to C corporations, with the intent to reduce the overall tax obligation that would otherwise burden its shareholders. Such a simplistic analysis, however, is imprudent. A number of tax considerations may still favor an S election, even in light of the generally increased personal income tax rate. Business owners are thus well-advised to avoid brashly reacting to the increased highest individual tax rate by disregarding the benefits of an S corporation classification. They may find that an S election continues to provide significant tax savings to their businesses despite the increased highest individual tax rate.
