Are You a Small Business C-Corp? Be Cautious About Reorganizing Just to Take Advantage of the New Six Percent Corporate Tax Rate

From SBAM’s member-only Focus on Small Business magazine

Business tax reform, which goes into effect on Jan. 1, eliminates the job-killing Michigan Business Tax (MBT) and the MBT Surcharge, replacing it with a 6 percent corporate income tax on C-corps only.

If you are a C-Corp and a small business, you really need to talk to your CPA about the several strategies available to you, advises Angela McGarry, a Lansing-based CPA who testified in favor of business tax reform this spring before the State Senate.

“If your profit is going to be consistently over $50,000 a year then, you might want to consider an S-election or some other entity, but that also has its complications,” says McGarry. “You’re going to want to consult with a CPA to do the conversion from a C-Corp to an S-election. It’s important to get an appraisal, because if in the future your business becomes very successful and you want to sell you have to be careful of the built in federal gains tax. You’ll wish you had an appraisal if that ever happens. Again, it’s a complicated issue and you need to talk to your CPA.”

McGarry says she believes that overall, the new tax law changes are going to be very beneficial to small businesses. It will give them extra dollars to spend on labor or that extra piece of equipment they need in their business,” she says.