On September 27, 2017, President Trump released his long awaited vision of the Tax Code rewrite that he promised during his campaign. While this plan is not entirely fleshed out, and does not address the massive budget deficit that critics have raised, it does give important insight into the direction that the Trump Administration and Congress may go.
Significantly, if you operate a small business, one of the five stated goals of this potential overhaul is “Tax relief for businesses, especially small businesses.” The proposal elaborates on this, stating that:
“Small businesses drive our economy and our communities, and they deserve a significant tax cut. This framework creates a new tax structure for small businesses so they can better compete.”
Lowering the Tax Rate to 25%
This is probably music to your ears and is worthy of further examination. Specifically, President Trump proposes to limit the tax rate of small businesses to 25%. This includes “small and family owned businesses conducted as sole proprietorships, partnerships and S corporations”, which have also been referred to as “pass-through” businesses and comprise an estimated 95% of businesses in this Country. This represents a steep discount from the current maximum tax rate of 39.6%. This could mean real savings for your small business.
In addition, the Trump administration is proposing allowing businesses to “expense” “the cost of new investments in depreciable assets other than structures”. While the proposal does not detail what assets might be eligible, it does promise that this “unprecedented level” of expensing will provide relief for small businesses.
Take a Wait and See Approach
Before breaking out the champagne or making any significant business decisions in anticipation of the lower rate, there are a few caveats to be weary of:
- Small business owners have long complained that corporations have a lower maximum tax rate. Under the new proposal, this will still be true, as the new proposed corporate tax rate will be 20%, which is lower than the proposed small business tax rate.
- The Tax Code overhaul may not come to fruition. Despite the White House and a majority in both houses of Congress, Republicans have yet to capitalize on this lead to pass any major legislation under the current administration. Like attempts to repeal the Affordable Health Care Act (ACA), attempts to rewrite the tax code without a mechanism to balance the budget will face tough opposition from fiscal conservatives.
You Need an Attorney
Speak with a tax attorney before making any sweeping changes to your business. Laws can be fluid and it is important to hire a taxation attorney who remains current with the status of the law. Call the Law Offices of Robert S. Thomas. I have over twenty years of experience in IRS taxation and can give you current, relevant legal advice to guide your business into the future. Contact our office today at 847-392-5893 to schedule an appointment or visit our website today.