With the 2025 election approaching, business owners operating under LLCs, S-corporations, and partnerships need to prepare for potential tax law changes. The Management Service Organization (MSO) strategy is already popular for its tax-saving advantages, and the election may make it even more crucial. This blog explores how different political outcomes may affect passthrough entities and why using an MSO taxed as a C-corporation (C-Corp) may maximize tax savings.
The Passthrough to C-Corp Delta: Post-Election Tax Savings Opportunities
Passthrough entities like LLCs and S-Corps currently enjoy certain tax advantages. However, after the election, using an MSO taxed as a C-Corp may become even more beneficial. The chart below outlines how political outcomes may affect the tax benefits of this shift.
- 2025 election
- Passthrough entities
- C-corporation (C-Corp)
- Management Service Organization (MSO)
- Tax savings
- LLCs
- S-corporations (S-Corps)
- Partnerships
- Tax law changes
- Net Investment Income Tax (NIIT)
- Tax Cuts and Jobs Act
- Corporate tax rate
- Business tax planning
- Democratic sweep
- Republican sweep
- Gridlock sunset
- Tax liability
- Profitability
- Tax deferral
- Political outcomes
Note: The Net Investment Income Tax (NIIT) adds 3.8% to certain types of income, including passive investments and Medicare contributions. However, this tax may not apply fully in every case.
Key Takeaways from 2025 Scenarios on Tax Rates
- Current Scenario: Passthrough entities are taxed at 37%, while C-Corps are taxed at 21%. Switching to an MSO taxed as a C-Corp may help businesses save up to 48.5% of their annual tax liability.
- Democratic Sweep: With a 39.6% marginal rate and a 28% corporate rate, the tax savings may decrease, but businesses may still save up to 37% of their annual tax liability by switching to an MSO taxed as a C-Corp.
- Republican Sweep: The most favorable scenario. A 15% corporate rate means businesses may save up to 63% of their annual tax liability using an MSO taxed as a C-Corp.
- Gridlock Sunset: If the Tax Cuts and Jobs Act expires, the tax delta may be 22.4%, enabling businesses to save up to 52% of their annual tax liability by using an MSO taxed as a C-Corp.
In all outcomes, an MSO taxed as a C-Corp remains an effective tool for deferring taxes and improving profitability.
