A CPA recommended switching over to a C Corp for real estate holding with the new tax law Trump signed in this year, especially if you are a sole owner with no debt. Tax rate is 21% vs traditional 35%.
Anyone else switched over? I was always told never to go the C Corp route due to double taxation any loans would be constructive dividends.
How are most people holding their parks?
This is only a good idea when the C Corp will not pay any dividends and re-invest everything into the business (e.g. a multi-year turnaround park), thereby only paying 21% and avoiding double taxation. This is only beneficial if your personal income tax bracket is higher than 21%.
If you’re in the top personal tax bracket AND you pay out dividends from the C Corp the effective tax rate is basically the same as a pass through LLC, for example, which will be right under 40% while QBI is in place through 2025.
Why did your CPA suggest you go this route?
Disclosure: I am not a tax professional.
I think the point was to leave everything in the Corporation, earn a salary and if funds are needed issue short term loans but otherwise everything will stay or acquired under the Corp.
I’d have the CPA show you on paper how a park would work out both ways before I did that. I believe you can elect to have an LLC taxed like any other corporation as well.
Unless you never want to really get your hands on the cash, I see no upside to being a C Corp. If you decided to take reasonable compensation there are Social Security and Medicare taxes to be paid by you and the C Corp on the wages. After the reasonable compensation, you could take dividends, which are still subject to taxation.
I would put the investments into an LLC, where you could utilize the cash that would be sheltered, in part, by the depreciation on the land improvements.
I agree with the previous response, make the CPA put his assumptions and conclusions in writing.