Business owners, corporate heads, and personal service providers are beginning to assess how the proposed GOP tax bill will affect the way they make and grow their respective enterprises.
The Republicans have always claimed that they are on the side of corporate America; hence, the Democrats are unsurprisingly gearing up for another legislative battle. However, the dotted line is far from being signed. Those who apparently will benefit the most—like said business owners—are also reading the fine print. They are taking a cautious approach at government’s latest proposal on how to tax them.
Kiplinger first makes it clear that one dominant element in the proposed bill is flat tax rates. Companies and firms, whether they provide products, industrial services, or personal services, will be the first in line starting 2018. Corporations per se will experience a tax cut from the current 35 percent to a flat but permanent 20 percent.
Businesses that provide personal services will be taxed a flat rate of 25 percent. This last rule will cover owners of S corporations, LLC’s, partnerships, and sole proprietors. Any income these business entities gain from passive business activities is also subject to the flat 25 percent tax.
What the flat 25 percent tax does not cover is the group composed of individual service providers or professionals who may not have put up their own company, but earn regular income through the skills they use for their customers. This group consists of engineers, accountants, doctors, writers, lawyers, and business consultants. These professionals-cum-consultants are advised to seek the help of tax experts. In turn, these experts can help them figure out how to pay the right amount of taxes, and in what bracket or category.
Meanwhile, The New Jersey Herald reports some doubts on the business owners’ side as well. Those who will be taxed the flat rate also have some misgivings about the new plan. While the 25 percent rate applies to their corporations, as individuals, they will be taxed 35 percent of the income they earn from said businesses. This type of business income that they earn as individual owners from the companies they founded and are leading has been called the “pass-through” income.
Business groups have spoken out saying that the small-to-medium-sized enterprises will be hit hard by this arrangement. The National Federation of Independent Business has said that taxing the “pass-through” income will slow down the growth of these smaller companies. The Small Business Majority has already argued that the 35 percent taxation on the pass-through will help the more affluent business owners; however, it can cripple their colleagues who are just starting or do not have the same resources or cash reserves.
Finally, starting or potential business owners who are part of the millennial generation might also find that the new GOP tax bill might even slow down their entrepreneurial dreams. As analyzed by The Washington Examiner, many of these millennials are college graduates who owe the government student loans, at an average amount of $30,000 per student.
One factor that made it easy to pay those loans were tax deductions they enjoyed during the previous Obama administration. The new GOP tax bill will remove or lessen the rate of tax deductions they often resort to, in order to make ends meet or perhaps fund their aspirations.
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