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Is there about to be a deluge of LLC reclassifications?

A time-honored discussion engaged in by commercial entrepreneurs and fledgling business principals in Ohio and nationally centers on entity formation, with exacting attention focused upon the perceived advantages and drawbacks of assuming any particular business form.

That often means a close comparison of corporations versus limited liability companies, given that those two entity types confer distinct advantages (and, arguably, bring some downsides for select business players).

One feature commonly noted with LLCs is the so-called "pass through" process relevant to business-related income. Unlike corporate income, which can be taxable to both a corporation itself and to its shareholders when an asset increases in value, the pass-through feature germane to LLCs limits taxation only to business owners, given that the LLC structure does not define the business itself as a taxable entity.

Many factors determine which form is preferable in a select case, with Trump administration spokespersons and other commentators pointedly noting that the effective taxation rate on corporations and LLCs, respectively, is an obviously telling point when it comes to entity selection.

As noted in a recent Bloomberg article, the new presidential administration is proposing a material slashing of the pass-through taxation rate for LLCs, from a high of 39.6 percent that is levied on some business owners down starkly to a mere 15 percent.

The rationale: a dramatically lowered rate will spur increased business investment and job creation engendered by more money being kept in the pockets of business owners.

Will that turn out to be the case?

Time will tell of course, and Bloomberg notes that, at any rate, the proposal "faces many hurdles in Congress and within the Treasury Department."

Whatever the eventual outcome might be, the discussion surrounding it is certainly something that is being paid close attention to by LLC principals in Ohio and across the country.

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