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If you’re looking to start your own business, now may be the best time ever, especially if you are planning on using your retirement funds. ROBS (Rollover as Business Start-ups) have favorable tax implications, making this type of transaction more attractive than other types of start-up funding.
The Tax Cut & Jobs Act of 2017, fiercely debated in Washington, was signed into law on December 22, 2017. With the help of our tax partners, below are some of the highlights regarding the reform’s effect on the ROBS business:
- The graduated corporate tax bracket is no longer in effect. C-Corporations will now be taxed at a flat rate of 21% on taxable income. This eliminates situations where C-Corporations were taxed as high as 39% on taxable income.
- With the flattening of the corporate tax rate to 21%, the change means that any C-Corporation with taxable income of more than $90,385 will pay less corporate tax under the new law. The breakdown detailing the taxation of taxable income under the old tax law vs. the new tax law can be found here.
- The tax rate for C-Corporations is going to be significantly mitigated. This is true for corporations retaining profits as well as corporations that wish to sell their assets. The corporate tax burden has been lowered by approximately 40% for the majority of profitable businesses. This could potentially mean that unhappy business owners are more likely to part ways with their businesses while the tax consequence on the sale of the business is significantly diminished.
- Lower personal tax rates also make the C-Corporation more appealing when clients wish to pay themselves a salary.
- The reform has eliminated the corporate alternative minimum tax (AMT) which is another significant tax savings for C-Corporations.
A big advantage of ROBS transactions is that it allows entrepreneurs to use their 401(k), IRA, 403(b) or other qualified retirement accounts to fund a business tax-deferred and penalty-free. And because the retirement funds are used to buy stock in the newly formed corporation, there is no debt. Additionally, this funding option can provide the necessary capital injection for Small Business Administration (SBA) loans.
To learn more, visit benetrends.com.