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Yeah, but if you're reinvesting in your company, then you might be better of at 15%, even with double-taxation. Currently, pass-through taxation applies to sha
by unclebucknasty 10y ago
Yeah, but if you're reinvesting in your company, then you might be better of at 15%, even with double-taxation.
Currently, pass-through taxation applies to shareholders even if they don't take a distribution. So, rather than have shareholders pay taxes out of pocket, the company pays the dividend just to cover taxes. That's essentially a ~30% tax on the company.
If I switch to a C-corp at 15% then I can minimize dividends while in growth mode to minimize double-taxation. I then pay the much lower 15% corporate rate, leaving me with ~15% more to reinvest.
- harryh 10y agoWith either setup you can reinvest all of your cash flow thus reducing your profit to zero and your tax burden to zero.
- unclebucknasty 10y agoIn theory, sure. But, anyone who has run a pass-through business will tell you that it's a function of timing. If you don't manage to invest it all by the end of the tax year, then it's taxable profit. And, it's nearly impossible to zero out your net by reinvesting it all before some contrived deadline. Even if you could, it is very unlikely that allowing this artificial timeline to drive your investment also happens to represent the best timing or the most efficient allocation of capital.