Interpreting the GOP Tax Reform Plan -- Part 1

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Last week, the House Ways and Means Committee released their long-awaited tax reform bill. Note that this is only a bill and is just a starting point for discussing tax reform.

This bill will be changed several times until the House and Senate can agree on the portions of the bill, and then the president signs the bill into law. In Part 1 of my series, we are going to discuss business tax reform.

CORPORATE TAX CUTS

Subtitle A of the bill focuses on Corporate tax rates. The C-Corporation tax rate is reduced from a graduated rate to a flat 20 percent. For personal service corporations, the rate is a flat 25 percent, while for S-Corporations, the tax rate on the flow-through is 25 percent. Any additional amounts would be taxed as compensation at ordinary 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 referencing their “capital percentage” of the net income from such activities.

About Craig W. Smalley, EA

Craig Smalley

Craig W. Smalley, MST, EA, has been in practice for almost 23 years. He has been admitted to practice before the IRS as an enrolled agent and has a master's in taxation. He is well-versed in US tax law and US Tax Court cases. He specializes in taxation, entity structuring and restructuring, corporations, partnerships, and individual taxation, as well as representation before the IRS regarding negotiations, audits, and appeals. In his many years of practice, he has been exposed to a variety of businesses and has an excellent knowledge of most industries. He is the CEO and co-founder of CWSEAPA PLLC and Tax Crisis Center LLC; both business have locations in Florida, Delaware, and Nevada. Craig is the current Google small business accounting advisor for the Google Small Business Community. He is a contributor to AccountingWEB and Accounting Today, and has had 12 books published on various topics in taxation. His articles have also been featured in the Chicago Tribune, New York Times, Yahoo Finance, Nasdaq, and several other newspapers, periodicals, and magazines. He has been interviewed and been a featured guest on many radio shows and podcasts. Finally, he is the co-host of Tax Avoidance is Legal, which is a nationally broadcast weekly Internet radio show.

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