Ten Reasons to Prefer Tax Partnerships Over S-Corporations

NY Business Law Journal, Vol. 22, No. 2, p 47, Winter 2018

Brooklyn Law School, Legal Studies Paper No. 584

9 Pages Posted: 15 Jan 2019

Date Written: January 14, 2019

Abstract

A fundamental choice for every business owner is the type of legal and tax entity the owner will use for the business. Because C-corporations are subject to an entity-level tax, owners of small businesses often face the choice of operating as an S-corporation or a tax partnership. To the uninitiated, the choice may appear to be trivial because both tax partnerships and S-corporations provide passthrough tax treatment (i.e., no entity-level tax). In fact, however, despite the passthrough nature of both tax partnerships and S-corporations, tax law treats them differently in many respects. This article identifies ten ways in which tax law treats the two types of tax entities differently, showing that in many situations, business owners will be better served by forming as tax partnerships. The article also identifies situations under which S-corporations provide the better tax alternative. The article includes a discussion of how changes to tax law in the 2017 Tax Cuts and Jobs Act can affect the choice between a tax partnership and an S-corporation. In short, the article shows that not all passthrough tax regimes treat businesses equally.

Suggested Citation

Borden, Bradley T., Ten Reasons to Prefer Tax Partnerships Over S-Corporations (January 14, 2019). NY Business Law Journal, Vol. 22, No. 2, p 47, Winter 2018; Brooklyn Law School, Legal Studies Paper No. 584. Available at SSRN: https://ssrn.com/abstract=3315586

Bradley T. Borden (Contact Author)

Brooklyn Law School ( email )

250 Joralemon Street
Brooklyn, NY 11201
United States

HOME PAGE: http://www.brooklaw.edu

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