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The Important Tax Reform Deadline That Entrepreneurs Should Know About Now March 15 marks an important deadline. Are you on top of this?

By Peter Gasca Edited by Dan Bova

Opinions expressed by Entrepreneur contributors are their own.

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If you're like most entrepreneurs, chances are you probably pay little attention to the federal tax code -- unless, of course, your business is knowing the tax code -- or you love self-punishment.

Related: 10 Tax-Savings Hacks That Small Business Owners Often Miss

The tax code is long and complicated, and the reality is, an entrepreneur's time and energy is better spent focusing on his or her company's vision and strategy rather than trying to understand whether it's permissable to deduct a dog's grooming expenses (turns out it's not).

For this reason, some entrepreneurs may have missed the fact that an important deadline is approaching this week, which could have a significant impact on their 2018 tax returns.

With the recent changes resulting from the tax reform law passed last year, entrepreneurs must immediately decide whether to change their corporate structure (by choosing between a C corporation and a pass-through company like an S-Corp or LLC) to benefit from the new law's changes.

The deadline is March 15 and is retroactive to January 1, 2018.

Certainly, entrepreneurs should consult with their accountant or tax specialist to fully understand the impact on their specific businesses. But, for a quick overview, I consulted with William Norwalk, tax partner-in-charge at Sensiba San Filippo LLP in San Francisco. Norwalk provided the following simple advice and considerations entrepreneurs should make:

Related: This Financial Hack Could Save You Thousands of Dollars in Taxes

When not to revoke your S corp status: If you are currently operating as an S corporation, and it is a very close decision whether to change from an S corporation to a C corporation, don't revoke your S corporation status. You can always do this in the future, but once the S corporation election is revoked, you may not reelect an S corporation status for at least five years without IRS permission. And if you've ever worked with the IRS, you know how troublesome that might be.

When to be taxed as an S corp: If your company is not distributing profits to owners and instead reinvests profits, it is generally better to be taxed as a C corporation. If more than two-thirds of the profits will be distributed to the shareholders, however, it will generally be more beneficial to be organized as a pass-through entity. The precise calculation for each business should consider both the federal and state income tax burden and will differ depending on the state in which the business operates.

Why you shouldn't overlook your exit strategy: An entrepreneur's exit strategy for the business should not be overlooked. If the entrepreneur wishes to sell its shares, a C corporation will generally be more conducive for this. C corporations, however, generally sell for less than pass-through entities (S corporations or LLCs) when a potential buyer wishes to purchase only the assets of the company rather than stock (which includes debt). Not sure about your exit strategy? Maybe it is time to create your own long-term plan for your business.

That alluring business deduction: The new business deduction for for pass-through entities is a very nice change, especially if you are a small business considering incorporation. The reason is that it effectively reduces the business tax rate from the individual 39 percent to about 30 percent on income generated by the business. This deduction is only for qualified businesses, however; and to receive the full benefit, your taxable income should be below $157,500 if you are single, or $315,000 if you're married and file jointly. If your business is generating more, talk to your accountant to determine if it qualifies.

Entrepreneurs probably never consider changing the type of business structure they originally selected, because that move involves complicated and expensive steps and should generally be avoided unless you're forced to change due to new income levels or partners -- and those are good "problems" to have.

Related: Before You Form an S Corp, Consider These Points

With tax reform, however, changes in regulations can offer opportunities to small businesses, and while it is a painful endeavor to make changes, the long-term benefit and value added could make for a nice bonus -- one that could be used toward a new bookshelf for your tax code books.

Peter Gasca

Management and Entrepreneur Consultant

Peter Gasca is an author and consultant at Peter Paul Advisors. He also serves as Executive-in-Residence and Director of the Community and Business Engagement Institute at Coastal Carolina University. His book, One Million Frogs', details his early entrepreneurial journey.

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