Tax Reform Could Open Up a Huge Loophole for the Wealthy
Source: Bloomberg
In the emergency room, theres a good chance your doctor isnt an employee of the hospital. She might be an independent contractor and, for tax purposes, the owner of a small business whose sole purpose is to sell her services as a physician.
Thats one example of a pass-through business, now a hot topic in the U.S. tax reform debate. Everything from a giant real estate business to a corner liquor store can be a pass-through, so called because it doesnt pay taxes itself but instead passes profits on to the owner, who pays taxes based on his or her own individual rate.
In fact, of the 26 million businesses in the U.S. in 2014, according to the Brookings Institution, 95 percent paid taxes on a pass-through basis. Unless a company is large or its ownership is complex, a pass-through is usually the simplest and lowest-tax option. Actors, architects, factories, and football teams can all structure themselves as pass-through entities.
Now, everybody else might want to get in on the act, or at least think about it if theyre in a higher tax bracket. The tax reform framework released this week by President Donald Trump and congressional leaders offers a lucrative treat to pass-through business owners. A key provision would cap the federal rate for many pass-through businesses at 25 percent, a huge tax cut if owners are now taxed at the maximum individual rate of 39.6 percent.
Read more: https://www.bloomberg.com/news/articles/2017-09-29/tax-reform-could-open-up-a-huge-loophole-for-wealthy-americans
Eliot Rosewater
(31,097 posts)$200,000 a year, these tax cuts will be devastating to their ability to survive, period.
onecent
(6,096 posts)We have to get rid of the dotard!
TexasBushwhacker
(20,044 posts)They have to pay themselves a "reasonable" salary, but an S Corp with a $100K profit could pay the owner a $50K salary and a $50K distribution and cut their Social Security and Medicare taxes by half.
Gothmog
(144,005 posts)This bill would be a major tax cut for me and other lawyers
IronLionZion
(45,261 posts)and tell us it's raining. We're so screwed. The Trump slump is coming.
C Moon
(12,188 posts)n2doc
(47,953 posts)And it will have the same consequence- huge deficits.
They also forgot to mention contractors, builders, and anyone else who can structure their income as a pass through.
Very quickly you are going to see no one paying the 35% rate.