The annual tax return provides an opportunity to re-consider the options available. Entities with more than one shareholder or member can elect corporate status on their annual tax returns. Thus, an entity that is a partnership under state laws may elect to be taxed as a ‘C’ corporation, or S corporation, for federal taxes by using Form 8832 (Entity Classification Election). Unfortunately, under those so-called “check-the-box” regulations entities formed under a state’s corporate laws are automatically classified corporations and may not elect to be treated as any other type of entity.
Determining who will benefit and who will face a higher tax bill under the new rules for pass-through income is difficult because there doesn’t appear to be a cohesive policy. Guidance is needed to define specific “service” trades or businesses because, under the new law, a service business isn’t eligible for the tax break.
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