Choice of Entity Under the TCJA: Tax and Financial Aid Implications

Abstract

This article focuses on the actual individual and business income tax liabilities that would be imposed on business owners in three case simulations. This research evaluates the effect of business entity choice under the TCJA when considering a financial goal that is relevant for many taxpayers and small business owners: funding college education. The simulations show the income and payroll tax consequences associated with business entity choice along with the effect on college financial aid eligibility. We analyze how the tax code and financial aid regulations interact and identify planning opportunities and variables that can help small business owners achieve their college funding and tax planning goals in the most financially efficient manner.

Keywords: Business Entity Choice, Tax Planning, QBI Deduction, TCJA, Financial Aid, FAFSA

JEL Classification: H21, H25, I22