The new tax plan presents challenges for IRS auditors as we all await the final draft of tax reform legislation in Washington. The primary concern centers around the ability of wealthy US taxpayers to “reap massive windfalls” by simply reclassifying income as “pass-through business income.” The most recent “final” plan reduces income from pass-through business from 39.6% to 29.6% in many cases and would also provide a 20% deduction for the first $315,000 of qualifying business income.
Business entities such as many LLCs, partnerships and sole proprietors do not pay tax at the company level and simply pass-through all of the income to individual US taxpayers. Others, such as S Corporation shareholders must maintain a justifiable and reasonable “salary” (not one set fictitiously low based upon IRS standards) above which all other dividends would be taxed conceivably at the pass-through rate.
IRS lawyers will be tasked with developing strategies to prevent US taxpayers from misclassifying income and reaping substantial tax advantages through the deployment of pass-through business entities. There is also a substantial conversation regarding the repatriation of international income and the future structuring of cross-border and international entities based upon changes to the new tax code.
Allen Barron is well positioned to guide LLCs, partnerships, S Corporation shareholders and business owners through tax reform and into the new year. Our integrated tax services, legal, accounting and business advisory offerings help business owners to answer complex business questions from a much higher and broader perspective. We invite you to download and read our recent white paper “The Value of Integrated Legal, Tax, Accounting and Business Advisory Services” and learn how to leverage economies of scale while gaining answers which balance and reflect the various business disciplines and departments within your own company or organization.
The new tax plan presents challenges for IRS auditors as they prepare to prevent wide-scale windfalls. It also provides opportunities for your company to reduce tax liability and increase profitability. We invite you to contact us or call 866-631-3470 for a free consultation. Our clients value the ability to bring Allen Barron their challenges and opportunities and hand them off knowing we will help them to understand and implement a solution which is informed by experts who approach the issue from every aspect: business, management, operations, supply chain management, legal, tax, accounting, sales and service.