C Corporations and Pass-Through Entities Under the New Tax Regime

I. INTRODUCTION.

In selecting the form of organization for a business or investment entity, the owners typically must choose from among a C corporation, an S corporation and an entity, such as a limited liability company (“LLC”), classified as a partnership for tax purposes. A C corporation is separately taxed on its income, with the owners generally reporting only any dividends they receive and any gains or losses they have on sales of their shares. The income or loss of an S corporation or partnership, on the other hand, is reported by the entity’s owners, which is why S corporations and partnerships are sometimes referred to as “pass-through entities.”1 The Tax Cuts and Jobs Act of 2017 (the “TCJA”) significantly affected choice of entity decisions by, primarily, reducing the rates applicable to the income of C corporations and individuals. This article compares how the earnings of C corporations and pass-through entities are taxed federally in the wake of the TCJA.

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