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Tax Reform Discussion- Business/Corp edition
Posted on 11/7/17 at 11:43 am
Posted on 11/7/17 at 11:43 am
While there is a thread on the tax reform effort, it seemed to focus on the individual side. A large part of this reform are the corporate changes so I thought it should have a separate discussion to "unpack" the proposal. I am drawing from the Tax Foundation, which is a supporter, so take that in mind.
Tax Foundation Tax Reform Details
From the business section:
Simple enough
Yep, got that. Wonder what those rule will be?
Hmmm. Any experts on this board want to unpack that?
Tax Foundation Tax Reform Details
From the business section:
quote:
Corporate Tax Rate Lowers the corporate income tax rate from 35 to 20 percent.
Simple enough
quote:
Creates a new 25 percent maximum tax rate on pass-through business income, subject to anti-abuse rules.
Yep, got that. Wonder what those rule will be?
quote:
Parse-Through Anti-Abuse Rules Begins with assumption that 70 percent of income derived from a business is compensation subject to ordinary rates and 30 percent is business income subject to the maximum 25 percent rate for active owners. Businesses can “prove out” of the 70/30 split based on demonstrated return on business capital at the short-term applicable federal rate (AFR) plus 7 percent. Certain specified service industries, like health, law, financial services, professional services, and the performing arts are excluded from the 70/30 split and can only claim the benefit of the lower pass-through rate to the extent that they can “prove out” their business income.
Hmmm. Any experts on this board want to unpack that?
2
Posted on 11/7/17 at 11:47 am to BigJim
Another item to focus on:
Any good articles or links to unpack this? I know this moves us away from a system where we tax profits on activities outside the US (and we are one of two that do that) so I am glad to see the move. BUT not clear on how the proposed system would work.
quote:
International Income Moves to a territorial tax system, in which foreign-source dividends and profits of U.S. companies are not subject to U.S. tax upon repatriation. However, 50 percent of excess returns (those greater than a routine return, defined as AFR plus 7 percent) earned by controlled foreign corporations (CFCs) are included in U.S. shareholders’ gross income. In addition, payments made from US corporations to a related foreign corporation are subject to a 20 percent excise tax unless the US corporation claims the transaction as effectively connected income (ECI). ECI is added to the taxable income of the US corporation, but the related foreign corporation’s expenses can be deducted from this income.
quote:
Deemed Repatriation
Enacts deemed repatriation of currently deferred foreign profits, at a rate of 12 percent for cash and cash-equivalent profits and 5 percent for reinvested foreign earnings.
Any good articles or links to unpack this? I know this moves us away from a system where we tax profits on activities outside the US (and we are one of two that do that) so I am glad to see the move. BUT not clear on how the proposed system would work.
Posted on 11/7/17 at 1:54 pm to BigJim
I’m a doctor, so I guess I’m included in that “health” exclusion. What does “prove out” mean?
Posted on 11/7/17 at 1:58 pm to AndyJ
quote:
I’m a doctor, so I guess I’m included in that “health” exclusion. What does “prove out” mean?
How do you get paid? Is it as an individual? Or even a partnership? Then this probably won't apply to you.
If you are part of a medical corporation that pays you dividends, then this applies.
You will pay the "pass through rate" rather than the corporate rate. I THINK. Would love some confirmation of that reading.
Posted on 11/7/17 at 2:12 pm to BigJim
Thanks. I’m self employed but have an s Corp setup. My accountant did it this year for me. So my s Corp pays me a certain amount after my boss pays my s Corp as a 1099 employee. I think that’s how it works.
Posted on 11/8/17 at 3:15 pm to AndyJ
I am a business owner, professional services. I don't understand what prove out means either. My passthrough income is 200k, so how would new plan affect me?
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