Entity Selection Calculator

This worksheet is designed for Tax Professionals to evaluate the type of legal entity a business should consider, including the application of the Qualified Business Income (QBI) deduction. The best tax strategies may include a combination of business entities to optimize the tax results for the taxpayer.

Entity Selection Calculator
 Questions and Scenario Inputs   Response   Weight           
Business activity (1)
           
Does the activity qualify for QBI Deduction? (2)
         
Does the business need earnings for working capital?
         
Does the Owner need cash distributions?
         
Is the Business likely to generate losses for 1+ years?
         
Does the Business have liability risks?
         
Plan to sell in 5+ years with QSBS gain exclusion? (3)
         
Plan to sell business with long term capital gain?
         
Taxpayer Federal Marginal Tax Rate (4)
         
               
Taxpayer filing status
           
Business activity income before wages            
   Non-owner W2 wages of business activity            
   Owner's W2 wages from business activity (5)            
   Unadjusted basis of property for QBI (6)            
Taxpayer other taxable income            
Taxpayer adjustments to income            
Itemized deductions (if higher than SD)            
               
 Analysis   Schedule C/F   Schedule E Rental   Partnership K-1   S Corp K-1   C Corp     
Questionaire Score for Analysis (7)    
               
   
   
   Owner's W2 wages from business activity   $                        -    $                    -    $                 -      
Net income of business activity    
   
   
Less: Taxpayer Total Deductions     
Taxable income before QBI (+Salary,+K1,-SE Tax)    
Less: QBI Deduction  NA     
Taxable Income    
SE Tax / Payroll Taxes on owner's wages (8)    
Federal Individual Income Tax (9)    
Corporate Tax (21%)  NA   NA   NA   NA     
Total Taxes     
               
Net Cash to Owner (Salary, K-1, -Taxes)    
C Corp Cash Retained            
Total Cash After Taxes    
               
               
               
               
DISCLAIMER: This worksheet is one tool in the consideration process and should not be relied upon without the advice of a professional who understands all the facts and relevant implications. This worksheet provides directional analysis and will not predict actual results. Additional considerations not included in this analysis, such as State Taxes, should be included entity selection considerations.    
     
Footnotes:    
1. Choose Service businesses to apply the QBI Service Limitation. A service businesses (SSTB), includes a trade or business involving the performance of services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, investing and investment management, trading, dealing in certain assets or any trade or business where the principal asset is the reputation or skill of one or more of its employees.     
2. Pass thru businesses may qualify for the Qualified Business Income (QBI) deduction. For more details, review the Tax Cuts and Jobs Act, Provision 11011 Section 199A - Deduction for Qualified Business Income FAQs by IRS:  https://www.irs.gov/newsroom/tax-cuts-and-jobs-act-provision-11011-section-199a-deduction-for-qualified-business-income-faqs    
3. If the taxpayer is planning to sell the business in the future, consider using an entity structure that will benefit from long term capital gains treatment, including Qualified Small Business Stock election to exclude certain qualifying gains.    
4. As the Taxpayer's Federal Marginal rate exceeds the 21% flat corporate rate, the C Corp becomes more attractive from a tax planning perspective.    
5. W-2 wages used to calculate the Sec 199A(b)(2) limits are wages paid to the owner’s employees. Sole proprietors and partners are not permitted to pay themselves W-2 wages. They are not considered employees in the eyes of the IRS.     
6. Enter the unadjusted basis immediately after acquisition (UBIA) of qualified property held by the trade or business.    
7. The Entity Selection Score is a qualitative analysis based on responses to the questions, and weighting the value of each question based on user input above. This qualitative analysis is directional only, and should be used in conjunction with other considerations, including the worksheet below.    
8. The worksheet calculates SE Tax on Owner Wages for Schedule C/F and Partnership earnings, without respect to other wages that might be paid to Taxpayer that may reduce SE Tax.     
9. The worksheet uses the 2018 rate tables for the Single and Married Filing Joint (MFJ) filing statuses.     
               
 Filing Status  From To  Rate  Plus Tax Avg Rate
Taxpayer Taxable Income            
Single 0 9,525 10% 0
Single 38,700 12%
Single 82,500 22% 4,454
Single 157,500 24% 14,089
Single 200,000 32% 32,090
Single 500,000 35% 45,690
Single   37% 150,690    
               
MFJ 0 19,050 10% 0
MFJ 77,400 12% 1,905
MFJ 165,000 22% 8,907
MFJ 315,000 24% 28,179
MFJ 400,000 32% 64,179
MFJ 600,000 35% 91,379
MFJ   37% 161,379    
   
 Taxes to Populate Entity Selection   Status   
 
Single: Federal Tax    
MFJ: Federal Tax    
               
 Social Security Wage Base            128,400  
Sch C/F/Pship Net / W2 Wages Taxes 0    
PR Tax / SE Tax
 Qualitative Score   
0 0 0 0 25
 QBI Deduction Calculation   Status           
N/A            
QBI Tentative Deduction #1 (20% of QBI)            
                       
  1          
                       
Does Wage Limit Apply?            
Total Wages              
  Wage Limit (50% Wages)              
  Reduction Amount over Wage Limit              
QBI Tentative Deduction #2a (Wage Limit)              
                       
             
     2.5% of Asset Base              
     25% of Wages              
    Wage/ Asset Limit (Sum)              
  Reduction Amount over Wage Limit              
  QBI Tentative Deduction (Wage/ Asset Limit)              
QBI Tentative Deduction #2 (Greater of Wage or Wage / Asset)              
                       
Does Service Business Limitation Apply?            
QBI Tentative Deduction #3 (Service Business Limit)            
                       
Taxable Income Limit              
  QBI Deduction (Lowest QBI Tentative Deduction)              
Specified service trade or business (SSTB) phase out
MFJ
Specified service trade or business (SSTB) phase out
Single
                       
Wage Limit phase out
MFJ
Wage Limit phase out
Single