Revisiting Entity Choice for Small Business Owners

Abstract

Recent changes and proposed changes in federal tax laws may affect the important decision about which entity to choose when starting a small business. Reduction in the rate of tax on dividends to 15 percent has lessened the impact of double taxation of corporate income under Subsection C of the Internal Revenue Code. The Treasury Department's recent statement of support for proposals that reduce complexity in tax laws governing Subchapter S may make that entity choice more appealing than those taxed under complex partnership laws. This article will provide an overview of several business entity forms from tax and legal perspectives.