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Business taxes vary for C and S corporations

Bush-era tax cuts were allowed to expire for higher-income taxpayers without distinguishing between active business and passive investment income, impacting pass-through entities. Those entities that are organized as sole proprietorships, partnerships or S corporations now face a competitive disadvantage by way of a higher marginal tax rate on their business income than their C corporation competitors. For example, a C corporation that earns $1 million pays almost $350,000 in current taxes. If the same business is organized as a partnership of individuals, the current tax on the same amount of business income may be as high as $444,000, a 27% difference. If tax reform were to reduce corporate rates to 28%, that difference would balloon to 59%. According to IRS statistics, for every one C corporation, more than four businesses are now organized as either partnerships or S corporations



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