QBI vs C-Corp Conversion After-Tax 2027 Calculator
Compare keeping pass-through (S corp / LLC) status with §199A QBI deduction vs converting to C corp for 2027.
Why Entity Choice Matters in 2027
For 2027, both options have stable rules: §199A QBI deduction is PERMANENT (under OBBB), and the corporate flat tax rate of 21% remains. The choice hinges on (a) whether you qualify for QBI (SSTB phaseouts), (b) how much profit you need to consume vs reinvest, (c) state tax considerations. Pass-through generally wins for owners who distribute most profit; C corp can win when retaining earnings for growth. Source: IRC §199A, §11. Last updated: May 2026.
Pass-Through Math (S Corp / LLC)
Profit flows to owner's 1040, taxed at ordinary rates (up to 37%), reduced by 20% QBI deduction (if eligible). No double taxation. Owner pays SE tax / FICA on reasonable salary portion only. Best for cash-flow businesses where owner takes most profit personally.
C-Corp Math (Double Tax)
Corporation pays 21% flat federal tax on profit. Owner pays personal tax on dividends at 0/15/20% (qualified) plus 3.8% NIIT if MAGI threshold met. Combined effective rate on distributed profit: ~39.8% (21% + 23.8% on remaining 79%). But retained earnings only pay 21%, then deferred until liquidation.
When C Corp Wins
(1) High-growth startup retaining all earnings for years. (2) SSTB owners above the QBI phaseout (zero §199A deduction makes pass-through worse). (3) International expansion (C corp can use foreign tax credit, GILTI mechanics). (4) Looking for §1202 QSBS exemption (only available to C corp stock). Run the long-term scenario, not just year 1.
Frequently Asked Questions
Is the QBI deduction available to C corps?
No. Section 199A is exclusively for pass-through entities (sole props, S corps, LLCs taxed as partnerships, certain trusts). C corporations get the 21% flat rate instead \u2014 they cannot stack the 20% QBI deduction on top.
What's the effective rate on C-corp distributed profit in 2027?
About 39.8% combined: 21% corporate tax + 23.8% on dividends (20% qualified + 3.8% NIIT for high earners). On a $100 of profit: $79 after corporate tax \u00d7 $60.18 after dividend tax = ~$60 to owner. Pass-through with full QBI: ~$70-72 to owner.
When does C-corp conversion make sense?
When you (a) plan to retain most profit for growth, (b) are an SSTB above the QBI phaseout (so QBI is zero anyway), (c) want \u00a71202 QSBS treatment for eventual exit, (d) need foreign-income mechanics (GILTI, FTC). For lifestyle businesses with full distributions, pass-through almost always wins.
Can I switch back to pass-through after going C corp?
Yes \u2014 file Form 2553 (S election) effective for a future tax year. But beware: Built-In Gains tax under \u00a71374 applies for 5 years on any appreciated assets owned at conversion. This can claw back C-corp benefits. Also, accumulated earnings & profits become E&P distributions when paid out.
Does state tax affect the comparison?
Hugely. Texas and Florida have no individual income tax (favors pass-through). California taxes both individual income at 13.3% AND has 1.5% S corp franchise tax. Some states have PTET workarounds. Always run the math with combined federal + state.
What's QSBS / Section 1202 and why does it matter?
Qualified Small Business Stock under \u00a71202 lets shareholders of certain C corps exclude up to $10M (or 10\u00d7 basis) of gain on sale after 5-year hold. ONLY C corps qualify. For founders aiming for a 7-figure exit, this alone can justify C-corp election even with double taxation costs.