We’ve heard so much about the Trump Administration’s talk about tax reform, but the looming question is whether changes will actually help your small business.
One of the major components is to cut corporate tax rates from a maximum of 35 percent to 15 percent. But these savings only apply to C corporations, and most of small businesses are limited liability companies or S corporations. So pass-through entities must be addressed.
Both President Trump’s plan as well the House Ways and Means Committee tax reform proposal call for three tax brackets of 12, 25 ad 33 percent, though they differ on when each bracket comes in to play. Currently, the highest individual rate is 39.6 percent on taxable income over $250,000. In Trump’s plan pass-through entities can elect a maximum tax on business income of 15 percent. The House’s plan is similar, but the maximum rate is 25 percent.
If one of the plans passes, many small business will realize a savings of up to 28.4 percent on K-1 income. Both plans would also allow for full capital investment expensing, but in most cases companies would no longer be able to deduct net interest expense.
*Will Trump's Tax Plan Benefit Small Businesses? Bill Smith, Entrepreneur, February 9, 2017
