No matter who the next president is, there will be major changes in the federal income tax rules. Faced with the expiration of the Bush tax cuts in 2010, it is widely expected that the new president and the U.S. Congress will make tax policy a priority for next year.
As Election Day nears, the tax proposals from the two candidates are rapidly coming into focus. So, it's not too early to start thinking about what this could mean for businesses.
If John McCain is elected
The McCain proposals on tax policy are generally viewed as favorable to business taxpayers, including a gradual reduction in the corporate tax rate to 25 percent and a permanent extension of the Bush tax cuts, including the 15 percent tax rate on corporate dividends.
If Barack Obama is elected
The Obama tax proposals are mostly focused on individual tax provisions offering various tax relief and benefits for seniors and lower and middle-income taxpayers, including a permanent extension of the Bush tax cuts for taxpayers with income under $250,000. The top individual tax rates of 36 percent and 39.6 percent under President Clinton would be restored for taxpayers with income over $250,000. The tax rate on capital gains and corporate dividends would be increased to 20 percent. The Obama Plan does not include a specific proposal regarding the corporate tax rate.
"A seldom publicized consequence of increasing the individual tax rates is the adverse impact on businesses structured as pass-through entities, which pay taxes at the individual rates," said Mark E. Cobetto, tax advisory services shareholder, Schneider Downs.
"Under the Obama Plan, the top tax rate on businesses structured as pass-through entities would increase from 35 percent to 39.6 percent, and all pass-through entities with income in excess of $250,000 would likely see an increase in their tax bill."
Based on 2005 statistics, nearly two-thirds of the almost 10 million business tax returns filed (excluding sole proprietorships), were partnerships and S-Corporations. These pass-through entities accounted for over 40 percent of the total reported taxable income on all business tax returns.
No matter who wins the election, 2009 promises to be an interesting year for businesses and their tax advisors.
AccountingWEB would like to thank Schneider Downs for preparing this report. Pittsburgh, PA-based Schneider Downs is one of the top 50 largest public accounting firms in the U.S. The firm offers 75 types of services from five business units: Assurance and Tax Advisors; Business Advisors; Technology Advisors; Wealth Management Advisors and Corporate Finance Advisors.