A few days ago, the Trump Administration proposed to decrease corporate and personal tax rates. Many of you may be thinking...How will this affect me and my business? Is this a good proposition or a bad one?
Making Sense Of It All
Here at GetPayroll we are here to help you make sense of all of the information flying around. Here is what we know:
Many small business owners in pass thru entities are paying a great deal more than 35% at the current corporate tax rate. This is a large percentage! A pass-thru entity is any S-Corporation, Partnership, or LLC. This particular entity does not pay income tax. All of the income is passed on to the owners (via a Form K-1) and paid on their personal 1040. So, the income is "passed-thru" to the owners.
With the new proposed corporate tax cuts, small businesses will be able to:
leave profits in the business,
pay a lower tax rate, and in return be able to
invest that money back into the business
All corporations in competitive industries such: as gas stations, grocery stores, department stores, automotive dealerships, etc. will be able to lower their prices when their taxes fall or when they lose market share. Corporate taxes are one of the only ways to indirectly tax the consumer.
Due to the proposed tax cuts, corporations from all over the world will want to headquarter in the United States. For a corporation, being able to tax all income worldwide will allow that corporation to bring the business more in-line with other countries. As well as reduce or eliminate the desire to keep profits overseas and not pay the current US taxes.
Tax Inversions Will Ultimately End Up Disappearing And Reversing
The 10% rate on bringing in overseas income will bring in 100’s of billions of dollars to the treasury if not more. With this 10% rate on overseas money, companies will be incentivized into keeping their factories and businesses in the U.S. rather than on foreign soil.
Increased Wealth For You!
A lower personal rate will mean that the dividends flowing from the corporation to the individual might actually be taxed at a lower rate. This means that the salaries of the owners might actually be taxed at a lower rate on their personal return, increasing their wealth.
Estate tax elimination will make the development of legacy wealth easier to implement. However, this is a minor change to the Treasury in terms of taxes. Children, ex-wives, and philanthropy eliminate a lot of intergenerational transfer already.
As far as eliminating deductions many of them are already capped. The time and money that will be saved by not having to file, track, and collect on low income taxpayers will be vast.
One critical change that has not been mentioned yet is the Capital Gains Tax. We also do not know what is going to happen to the EIC refundable credit. However, at the moment it is a huge source of fraud that needs to be addressed.
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