The passage of the Tax Cuts and Jobs Act (TCJA) in December 2017 was a massive reform of the tax code that had a significant impact on the taxation of business income. However, the manner in which taxes on business income were reduced by the legislation differed depending on the legal form of the business.

For businesses taxed on their income at the entity level, most commonly organized as C corporations, the TCJA dramatically reduced the corporate income tax rate from a graduated rate topping out at 35% to a flat rate of 21%. Businesses organized as “pass-throughs,” such as partnerships (including LLCs taxed as partnerships), S corporations and sole proprietorships, do not pay an entity-level tax. Instead, the income of pass-through businesses is taxed at the business-owner level, which remains a graduated tax rate system with a current maximum rate of 37%.