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Trump’s Tax Reform Plan Could Benefit Small Businesses

What should small business owners know about Trump’s tax reform plans?

President Trump ran on a platform of strengthening small businesses across the nation.  Small business owners everywhere are anxiously awaiting reforms that benefit them, and soon tax reforms could provide the relief they need.  In May, Trump released an outline of proposed tax changes.  These alterations could include a decrease in the individual income tax rate and a decline in the business tax rate from 35 percent to just 15 percent, which may include pass-through entities.  Our San Diego tax collections lawyers discuss Trump’s tax reform plans and how your small business could benefit.

Pass-through Entity Tax Rates

Small businesses usually fall into some form of pass-through entity.  Pass-through entities include LLCs, S corporations, or partnerships.  Pass-through entities have many benefits for business owners because they are not subject to income tax. Rather, owners are taxed individually on the income, accounting for their share of profits and losses.  This can save business owners significantly in taxes.  C-corporations, on the other hand, are taxed twice, with owners paying taxes on distributions and net income.

Pass-through entities are often controversial when it comes to tax reform.  In 2012, President Obama proposed a corporate tax rate cut, but did not include individual tax rates in the plan.  Trump’s plan, in contrast, will allow pass-through entities and C-corporations to pay just a 15 percent tax rate.  Other reform suggestions have included instead setting a separate tax rate for pass-through entities of 25 percent.  Time will tell which plan is adopted in the long run.

Individual Tax Rates

Small business owners could benefit from Trump’s tax cuts even if pass-through entities are not ultimately included in the reform.  Trump’s tax plan includes changes to the individual income tax rate as well as the corporate tax rate.  Trump proposes three tax brackets of 10, 25, and 35 percent along with repeal of the net investment income tax (NIIT).  These reforms could result in a substantial tax savings for small business owners in California as well as elsewhere across the country.  Business owners should stay abreast of the coming tax reforms and consult with a tax attorney for assistance with maximizing their tax savings.

Posted in: Tax Collections

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