Look Before You Leap on Tax Conversions

Lower Tax Rates for Conversions May Not Deliver the Most Advantages

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The flashy headlines around the lower tax rates as part of the new tax code are not always cut-and-dry, and businesses need to take a deep-dive look at the long-term impact these tax conversions might have on their ability to minimize taxes.

“We understand why at first glance a lower, flat 21% tax rate for C corp conversions appears to be easy tax savings.  But after performing thorough analyses and calculations around our clients’ unique organizational structures, we are finding that converting doesn’t always provide the most financial benefits.  Therefore, we advise businesses to look (closer) before they leap,” says Jim Rein, principal at K·Coe Isom.

“Understanding the impacts around the decision for your organization takes some complex calculations around the tax code, as well as strategic foresight, to make financially-advantageous decisions about whether or not to convert entities to C corps,” he adds.

Steps to Making Strategic Tax Decisions:

  1. File an extension. Due to the later release of tax filing software, an extension may be necessary for virtually all business owners.
  2. Allow time for preparation. As most of these calculations require thorough analysis and review, additional time will be needed to evaluate and assess your greatest opportunity for tax advantages under the new tax provisions.
  3. Have a tax expert review all underlying data and run all relevant calculations for unique scenarios. (Research is especially important around the implications stemming from Section 199A.)
  4. Understand the impacts and positioning of the decisions needed to maximize tax savings. This may take extra preparation and planning due to the changes in tax code, but the long-term benefits can financially outweigh some short-sighted decisions.

Contact a K·Coe Isom tax expert for a thorough tax analysis – to evaluate and outline potential impacts, and position your business for maximum tax savings.

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