As a result of the tax code revisions passed in December, many businesses have attained increased financial benefits and lessened tax burden by employing new tax savings strategies.
K·Coe Isom has been assisting businesses with strategic assessments and advice on how to utilize new provisions to capture opportunities and avoid obstacles. Our latest blog in the series on “Winning with Tax Reform” discusses clever ways businesses are positioning themselves to attain maximum tax advantages.
Entity Restructuring for Tax Savings
Potential to Reduce Costs, Simplify Processes, and Decrease Taxes
Entity restructuring under the new tax provisions has proven to be beneficial for many businesses in 2018 – from both a financial and operational standpoint.
From a tax perspective, the decreased flat tax rate of 21% for a C Corporation has been the primary reason many businesses are considering entity restructuring this year. In some cases, the risk of double taxation can also be avoided if carefully planned out.
But the benefits of restructuring go beyond tax savings, as they also aid in simplification—reducing tax return preparation and filing costs, as well as reducing reporting complexities for multiple entities on financial statements. Simplifying entities can generate substantial cost savings by streamlining financial and operational processes.
Case in Point: Client Example
A partnership underwent a tax assessment to evaluate potential opportunities under the new tax provisions, and included an evaluation of its strategic outlook. It was determined that a C Corp would provide more financial benefits in both the short and long term.
Shellee Callahan, principal for tax services at K·Coe Isom, said the restructuring was advantageous from several viewpoints, “Not only were we able to restructure the business to obtain a lower tax rate resulting in significant current income tax savings, planning also included an option to avoid future double taxation when the corporation is liquidated. The plan resulted in “permanent” tax savings versus deferring tax to be paid later. This plan includes retaining some of the existing structure to reduce the amount of change to the company’s day to day operations and bookkeeping—which was a huge relief from potentially cumbersome contract changes and paperwork to process.”
Often, when companies are structured as more than one entity, the assessment is more complicated and tax considerations become more involved. Each situation can be different so the restructure will be unique to a business’s need to increase cash flow, reduce debt, and provide greater financial benefits for the business and family, as well as reduce the tax burden. It can also eliminate multiple entity complexities stemming from internal and external accounting and auditing costs, as well as operational processes and risks.
It’s important to get a tax structure in place that will provide the most benefits for your entity structure—K·Coe Isom experts advise “the sooner, the better” as those benefits are yours for the taking right now.
For questions or assessment on entity restructuring benefits, contact a K·Coe Isom tax advisor.