Hartford Business Journal

10 Hartford Business Journal • January 7, 2019 • www.HartfordBusiness.com EXPERTS CORNER C-corp vs S-corp: Federal tax reforms alter business structure pros and cons By Corey Veneziano W hen the Tax and Jobs Act of 2017 was signed into law by President Trump, it was the most significant change to tax policy our country has seen in more than 30 years. One area particularly impacted by it was how certain corporations classify themselves, namely with C-corporations (where profits are taxed separately from the company's owners) and S-corporations (which are pass-through entities, taxed at the individual owners level). When the new tax law took effect, a much lower, flat corporate tax rate of 21 percent was adopted, which had a direct positive impact on C- corporations. So much so, in fact, that it led many owners of S-corporations to consider changing their corporate status to a C-corp to take advantage of such a significant reduction. However, the simple fact is un- like the tax cut of 1986, which was much more all- encompassing, the Tax and Jobs Act of 2017 is much more nuanced and complicated. And the decision to convert from an S-corp to a C-corp may or may not be the right move, depending on a number of factors. Why converting to a C-corp may be the right thing to do The most obvious advantage of converting to C-status is that new 21 percent tax rate, which when compared with the new top individual income tax rate of 37 percent offers what is obvious- ly a substantial savings for the owners. For business owners who don't have a strong need for access to cash right away, there could indeed be a major advantage to converting to a C-corp. Additionally, because pass-through S-corp owners pay state taxes on a per- sonal level, and personal itemized de- ductions of state taxes are now capped at $10,000, there could be much less of an incentive to remain an S-corp. C-corps are not subject to the same deduction limitations as an individual, so again, if the circumstances are right, this could be a smart move. Lastly, there is what is known as the Qualified Small Business Stock (QSBS) Exclusion, in which a qualifying owner may be able to exclude 100 percent of gain upon the sale of the business stock. This would allow an owner to avoid double taxation from a C-corp, and would highlight that coveted 21 percent tax rate. So clearly there are advantages; the challenge for existing S-corps now is to determine whether the time for such a conversion is right. Why converting to a C-corp may not be the right thing to do Conversely, there are still solid rea- FOCUS: Accounting By Matthew Broderick Special to the Hartford Business Journal L ast March, Marcum LLP, the mid-market accounting firm that has been slowly growing its Greater Hartford presence in recent years, officially launched its robotic process automation (RPA) service to help clients reduce operating costs and increase efficiency. The service — designed to automate tedious, yet time-consuming functions for clients, including accounts payable processing, data entry, report genera- tion and web data retrieval — reflects the firm's evolution from offering tradi- tional account- ing and business advice to digital consulting and transformation. The service evolved from Marcum's own experience using robotic processing and machine-based learning in recent years to streamline data-heavy account- ing tasks that can be more deeply and efficiently mined robotically. The approach has also shifted the firm's hiring habits, said Peter Scavuzzo, Marcum's chief information officer (CIO), who oversees the company's growing digital innovation. "Four years ago, before we started utilizing this [robotic technology], I changed our hiring patterns to [focus on] people with data-analytics back- grounds, and business analysts who can provide data insights," Scavuzzo said. His firm is not alone. In fact, the use of technology in the accounting sector has accelerated in the past three to five years, particularly with mid-sized firms. The volume of client data that's now available to firms has shifted the value- add that accountants can and must provide as they vie for clients in an age where new technology like ar- tificial intelligence is becoming more mainstream, indus- try experts said. "We're seeing [accountants] becom- ing more of an advisor profession," said Drew Andrews, managing partner and CEO of Hartford-based accounting and consulting firm Whittlesey. "We're able to spend more time giving business advice, and not spending our hours making sure the books are balanced." As automation replaces many of the sector's entry-level experiences — like reviewing a client's general ledger — the ex- pectations of those starting their ac- counting careers will be elevated. The responsibil- ities of a first-year accountant in the tech age, Andrews said, might be equivalent to that of a third-year employee 10 years ago. That's placed added pressure on local colleges and universities to adjust how they prepare and educate students for entry-level positions in data-centric professions like accounting. Andrews, for instance, is encour- Corey Veneziano Accounting 2.0 Automation, machining learning, AI shifting accounting industry landscape Peter Scavuzzo, Chief Information Officer, Marcum ILLUSTRATION | ASHARKYU, SHUTTERSTOCK.COM

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