Tax Rates and Business Structures

Due to 2022’s Inflation Reduction Act, large businesses — those with more than $1 billion in reported income — have to pay taxes at a minimum corporate rate of 15%. For other C corporations, the tax rate remains a flat 21%. Pass-through companies, including S corporations and limited liability companies (LLCs) also receive more favorable treatment. Whatever structure your company has, now may be a good time to discuss your corporate structure with your tax and legal professionals.

Inflation Adjustments

As with personal taxes, numerous business deductions and credits have limitations that are adjusted annually for inflation. Some also may have new or continuing phaseouts you should be aware of. Your employer-sponsored retirement plan, ESOPs, and other employee benefits may also be affected.

Pass-Through Entities

Corporate business owners who use pass-through entities, such as S corporations and limited liability companies (LLCs), to avoid being double taxed—paying corporate taxes and personal taxes—should be aware that the IRS is scrutinizing these entities more closely, starting in 2024. No federal corporate income tax is levied on business income for pass-through entities. Instead, profits flow through to owners’ individual tax returns, so they pay income tax only once at the individual tax rate. Review any pass-through entities you use with your tax provider.

Sole proprietorships and partnerships also avoid double taxation and receive flow-through treatment. However, these business structures don’t provide the limited liability of S corporations and LLCs. Sole proprietors and partners may be personally liable for claims against their businesses.

New Federal Reporting Requirements

Do you own 25% or more of a limited liability company, partnership, or other small entity that owns real estate or runs a small business? Are you a company’s president, CEO, general counsel, COO, or perform a similar role without holding the title? Do you have “substantial control” over any company? If you answered yes to any of those questions, then starting in 2024, you’ll need to register, or be registered, in a new federal database. The new reporting rule was issued in regulations released by the Financial Crimes Enforcement Network, part of the U.S. Treasury Department, in 2023. It’s in response to the Corporate Transparency Act. This information will generally be collected online.