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You are merely a wealthy person trying to pass yourself off as a business. You and those similarly situated will always do well under a tax-cuts-for-the-rich situation. By the way, 95% of small businesses make no net positive contribution to the economy at all. All of the benefits some from the few that happen to stumble on a good idea. They tend to run with that idea for a few years, then fade back into the pack. According to the SBA, small businesses meanwhile provide about 49 percent of private-sector employment and 43 percent of private-sector payrolls.
There is corporate tax, and there is tax on personal income. He likely fills out two tax returns. There are pass-through rates as well for individual owners and I think that is what you are referring to (those doctors or lawyers who will then feel compelled to organize themselves into LLCs to prevent being part of the highest individual tax category - obviously this rule was not intended for them). That tax on pass-throughs is indeed dropping but not to corporate tax rates, but proposed now to 25%. That is fixable and indeed the Trump plan, as well as the House plan, has added some legislative wording and laws to prevent these scumbags from going this route.
Otherwise, for the rich, the tax rate is the same as before - 39%. They will actually be paying more in tax because they are losing deductions.
There is corporate tax, and there is tax on personal income. He likely fills out two tax returns. There are pass-through rates as well for individual owners and I think that is what you are referring to (those doctors or lawyers who will then feel compelled to organize themselves into LLCs to prevent being part of the highest individual tax category - obviously this rule was not intended for them). That tax on pass-throughs is indeed dropping but not to corporate tax rates, but proposed now to 25%. That is fixable and indeed the Trump plan, as well as the House plan, has added some legislative wording and laws to prevent these scumbags from going this route.
Otherwise, for the rich, the tax rate is the same as before - 39%. They will actually be paying more in tax because they are losing deductions.
What route is it that "these scumbags" are using? Having a pass-through entity? And why are they scumbags?
What route is it that "these scumbags" are using? Having a pass-through entity? And why are they scumbags?
Yeah I was a bit strong there and considered editing it. I know what you are getting at - I'm as pro-capitalism as it gets and they aren't breaking any law, but they are going around the intent of the law. The pass-through laws were intended for small business owners - entrepreneurs who hire a few people and contribute to the economy via employment, production, and services, who otherwise don't qualify as a corporation or would then be subject to double taxation.
Now you have some, high paid surgeons for instance, they leave the hospital they were originally directly employed at, create a LLC, and let the same hospital hire back the "company". They never faced the burden of double taxation, they don't have employees, they are essentially offering the same services they did before. The intention is simply to pay less of a tax rate using the now lower "pass through rate".
Yeah I was a bit strong there and considered editing it. I know what you are getting at - I'm as pro-capitalism as it gets and they aren't breaking any law, but they are going around the intent of the law. The pass-through laws were intended for small business owners - entrepreneurs who hire a few people and contribute to the economy via employment, production, and services, who otherwise don't qualify as a corporation or would then be subject to double taxation.
Now you have some, high paid surgeons for instance, they leave the hospital they were originally directly employed at, create a LLC, and let the same hospital hire back the "company". They never faced the burden of double taxation, they don't have employees, they are essentially offering the same services they did before. The intention is simply to pay less of a tax rate using the now lower "pass through rate".
They did think about this, it was a frequent topic of conversation as they were developing the provision. Below is where they came out on it. Not to say there won't be abuses of this provision, but the situation you describe technically wouldn't work under the law for 100% of the income, only 30%. If there are enough abuses, I would suspect the law would be changed to have the personal services provision be much more inclusive.
Provision: Under the provision, a portion of net income distributed by a pass-through entity to an owner or shareholder may be treated as “business income†subject to a maximum rate of 25 percent, instead of ordinary individual income tax rates. The remaining portion of net business income would be treated as compensation and continue to be subject to ordinary individual income tax rates.
Each owner or shareholder would separately determine their proportion of business income. Net income derived from a passive business activity would be treated entirely as business income and fully eligible for the 25-percent maximum rate. Owners or shareholders receiving net income derived from an active business activity (including any wages received) would determine their business income by reference to their “capital percentage†of the net income from such activities.
Under the provision, owners or shareholders generally may elect to apply a capital percentage of 30 percent to the net business income derived from active business activities to determine their business income eligible for the 25-percent rate. That determination would leave the remaining 70 percent subject to ordinary individual income tax rates.
Alternatively, owners or shareholders may elect to apply a formula based on the facts-and circumstances of their business to determine a capital percentage of greater than 30 percent. That formula would measure the capital percentage based on a rate of return (the Federal short-term rate plus 7 percent) multiplied by the capital investments of the business. Once made, the election of the alternative formula would be binding for a five-year period.
A special rule would apply to prevent the recharacterization of actual wages paid as business income. An owner’s or shareholder’s capital percentage would be limited if actual wages or income treated as received in exchange for services from the pass-through entity (e.g., a guaranteed payment) exceeds the taxpayer’s otherwise applicable capital percentage.
The determination of whether a taxpayer is active or passive with respect to a particular business activity would rely on current law material participation and activity rules within regulations governing the limitation on passive activity losses under Code section 469. Under these rules, the determination of whether a taxpayer is active generally is based on the number of hours the taxpayer spends each year participating in the activities of the business.
Income subject to preferential rates, such as net capital gains and qualified dividend income, would be excluded from any determination of a business owner’s capital percentage. Such income would not be recharacterized as business income for these purposes and would retain its character. Certain other investment income that is subject to ordinary rates such as short-term capital gains, dividends, and foreign currency gains and hedges not related to the business needs, would also not be eligible to be recharacterized as business income. Interest income properly allocable to a trade or business would be eligible to be recharacterized as business income.
Under the provision, the default capital percentage for certain personal services businesses (e.g., businesses involving the performance of services in the fields of law, accounting, consulting, engineering, financial services, or performing arts) would be zero percent. As a result, a taxpayer that actively participates in such a business generally would not be eligible for the 25-percent rate on business income with respect to such personal service business. However, the provision would allow the same election to owners of personal services businesses to use an alternative capital percentage based on the business’s capital investments. This election would be subject to certain limitations. The provision would also apply a maximum 25-percent rate on certain dividends from a real estate investment trust (REIT) and patronage dividends from cooperatives.
The provision would be effective for tax years beginning after 2017.
They did think about this, it was a frequent topic of conversation as they were developing the provision. Below is where they came out on it. Not to say there won't be abuses of this provision, but the situation you describe technically wouldn't work under the law for 100% of the income, only 30%. If there are enough abuses, I would suspect the law would be changed to have the personal services provision be much more inclusive...
Well there you go, sounds good to me.
I tried to find more info on the provisions that would address this but all I found were articles saying "TRUMP TAX PLAN TO BENEFIT THE RICH" with absolutely no detail on what was proposed to prevent abuse until you posted the above of the pass-through rate.
Fake news - that's the media and the internet for you.
You are merely a wealthy person trying to pass yourself off as a business. You and those similarly situated will always do well under a tax-cuts-for-the-rich situation. By the way, 95% of small businesses make no net positive contribution to the economy at all. All of the benefits some from the few that happen to stumble on a good idea. They tend to run with that idea for a few years, then fade back into the pack. According to the SBA, small businesses meanwhile provide about 49 percent of private-sector employment and 43 percent of private-sector payrolls.
Do you know me? So I am "trying to pass myself off" by running successful businesses for the last 20 years - got it!
Business owners sacrifice, work long hours, risk life savings to grow companies and provide jobs and benefits to employees - even for employees like yourself who are not as strong in rational thought abilities. BTW, you have two contradictory arguments in your above gem of a paragraph: "small business make no net positive contributions 95% of the time" VS "small business provide 49% private sector employment."
How exactly does this math work?
Why do I even wander into this forum? Too many posters who pontificate on and on about business and economics, yet don't have the acumen to run a neighborhood lemonade stand..
There is corporate tax, and there is tax on personal income. He likely fills out two tax returns. There are pass-through rates as well for individual owners and I think that is what you are referring to (those doctors or lawyers who will then feel compelled to organize themselves into LLCs to prevent being part of the highest individual tax category - obviously this rule was not intended for them). That tax on pass-throughs is indeed dropping but not to corporate tax rates, but proposed now to 25%. That is fixable and indeed the Trump plan, as well as the House plan, has added some legislative wording and laws to prevent these scumbags from going this route.
Otherwise, for the rich, the tax rate is the same as before - 39%. They will actually be paying more in tax because they are losing deductions.
Of course I have corporate and personal returns. And I have accountants for that.
And FTR I am not a DR or lawyer... I am the president/shareholder of a legitimate USA manufacturing corporation that employs many skilled workers and provides an important product, as well as a legitimate commercial real estate LLC that develops properties and provides affordable housing.
The tax plan may help people like me reinvest in growing our U.S. businesses, employing more people with benefits, and investing in our local communities.
Married, two kids, total income $96k. From my back-of-napkin estimate, we would save $1,342 on federal taxes. We would be hit by the removal of student loan interest deduction (currently maxing every year at $2500) and the removal of exemptions, resulting in a $7,300 higher taxable income. However that's more than offset by the change in tax rate to 12% and the higher child tax credits.
Being in California, I think I would get hit with higher state taxes, because the removal of the student loan interest deduction gives me a higher federal AGI which is imported directly into my state income tax forms. As a result I would pay $200/year more in state income taxes unless CA decides to adopt their own student loan interest deduction. Am I understanding this correctly?
The Senate today announced that their tax plan will be quite different than the House's - it keeps most of the popular deductions and will include few of the revenue offsets the House bill has.
So the Senate is going to come out with a "have our cake and eat it too" tax plan which will like result in a deficit-exploding CBO score.
I gave tax reform a 50/50 shot of passing when the R's first proposed it. Now it's less.
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