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Last week’s tax reform proposal from the Trump administration would cut the tax rate for “Pass-Through” businesses to 15% which will create opportunity for savings, and for abuse.

Proponents of the plan claim that the reduction in business tax expenses will be followed by those businesses building, growing, and hiring at an accelerated rate relative to the past ten years. Critics, however claim the measure creates incentives to minimize employee pay to reduce higher payroll and income taxes, among other problems.

Former IRS commissioner during Ronald Reagan’s terms, Lawrence Gibbs stated that if the measure becomes law, we “will have scams coming out of the woodwork…Large Tax-rate differentials encourage abusive tax planning.

The administration promises forthcoming details and action proposals to protect the system from abuse. The plan is missing many specifics, but the proposed rate cut would extend from true small businesses and firms to global firms, hedge funds, and the President’s own branding business and real estate. More than half of all business income in the United States is currently earned by pass-through entities, which has seen a marked rise in popularity in recent decades. More than half of that pass-through income is earned by top-bracket taxpayers. This bracket begins at $470,700 for couples filing jointly and $418,400 for singles.

Laura Sanders of Dow Jones Newswires writes, “It is still unclear whether the proposal would apply to self-employed workers and how much wealthy owners of hedge funds and private-equity firms would benefit, if at all.” The proposal may not directly affect private-equity partners as they are already taxed at the lower Capital Gains rates. Those owners of hedge funds who receive management income are currently taxed at the 39.6% rate would receive this 15% break.

We’re here to help with all of your business and personal tax planning needs. So reach out and contact us and we’ll help guide you through the unpredictable future. As tax professionals, it’s our job to understand and follow the changes of any administration and will continue to work for your financial best interests. If you have tax questions or a tax debt you are unable to pay, our experienced tax settlement professionals are happy to discuss your tax resolution options free of charge. For more information about our services, visit us today at www.ocbookkeeping.com or call us at 877.889.6527. Our CPA’s, Enrolled Agents and other skilled accountants have a thorough understanding of tax law together with the experience necessary to know which tax settlement option will be the best fit for your specific set of circumstances.