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In our conversations with clients, entity selection is not only one of the most commonly discussed topics, it’s also one of the most important. The decision to make an entity change is not nearly as simple as you might think. In this episode of “Unique Perspectives – The DGC Podcast,” our guest is Steve Minson, CPA, MST, a Partner at DGC. Steve explains the differences between the three entity types: C Corporation, S Corporation, and Partnership, and why researching all three options is essential.
The following is a partial transcript of Steve’s interview with host Tom Annino.
Tom Annino: People might look at this from afar and say, “What is there really to discuss? I’ll just opt for the lowest tax rate and be done with it.” You say that’s a problematic way of looking at entity selection. Tell us why.
Steve Minson: When the new tax law was passed, I think everybody looked at the new corporate tax rate of 21%, which is historically low, and thought, “Why shouldn’t I just change to a C Corporation and save anywhere from 10% to 20% in taxes?” While that may look great, and on a short-term basis it probably is great, you need to look at this from both a short- and long-term perspective. Ultimately, what we find is that if you look at it long-term, you usually find that a flow-through entity, if it’s available to you, ends up being the better answer.
TA: You believe that it’s important to go through the research process to find out if there might be an opportunity out there if you were to make a change.
SM: Absolutely. This is not a one-size-fits-all scenario. Every business is different. Every business, and even the individual owners, have different goals both short-term and long-term. There is no one answer that works. We can’t sit there and tell you that one approach is better than the other. While we can say that, very often, a flow-through entity may be the better answer, it just doesn’t always work that way for everybody. There are so many variables in place that you really need to sit down with your advisors, walk through it, walk through your short-term and long-term goals, and get a better understanding of what the tax consequences are from your current operations as well as any future sale.
What are some of the distinct advantages between C Corporation, S Corporation or Partnership? How many clients end up making a change? Steve explains these topics later in the episode. You can listen to the episode by using the Soundcloud player above or click here.
DGC’s team of advisors have guided many business owners through the entity selection process, ensuring they make the correct decision. For more information about entity selection, contact a member of your DGC client service team or Steve Minson, CPA, MST at 781-937-5120 / firstname.lastname@example.org.