Business Formation in Light of The Tax Cut and Jobs Act

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b2ap3_thumbnail_Untitled-design-25.jpgIf you are active in commerce, whether as a part of a sizeable corporation or small business, or merely planning an entrance into the business world, you need to understand how the proposed Tax Cuts and Jobs Act will affect your bottom line. The percentage of tax your business will pay, or the percentage that you as an individual will pay on income passed through a business entity, bears on the scale and scope of your yearly operations. In planning for your financial future in business, count on an experienced Fremont business law attorney.

The Tax Cut and Jobs Act Intends to Permanently Lower the Corporate Tax Rate

If you are on the board of a successful large corporation, you will likely benefit from the Tax Cut and Jobs Act. This is because the legislation intends to permanently lower the corporate tax rate from 35% down to 20%. The President has alluded to a compromise in the 22% range, but this remains to be seen. Either way, with the bill in the final conference-related stage, traditional corporations could soon benefit from a substantial decrease in taxes owed. The philosophy behind this at least initially deficit-increasing measure: to encourage business to remain in the U.S., investing savings in expanded domestic operations and the jobs that would propel them, rather than looking abroad.

The Tax Cut and Jobs Act Affects Individuals Earning Less Than $100,000

Traditional corporations are not pass-through business entities. In other words, when a dividend is paid out from the corporation to shareholders, the dividend is subject to taxation on its way out of the corporation’s coffers. With a pass-through business entity such as an LLC, income is not taxed when it passes from the business to the business’s owner(s). The Congressional Budget Office (CBO), in analyzing the effects of the Tax Cut and Jobs Act on the nation’s economy, concludes that because the permanent tax cuts will be funded by decreases in spending and services, individuals earning less than $100,000 will, by 2027, pay more taxes and/or experience diminished services (e.g. Medicare and Medicaid). 

Planning for Your Financial Future

The pending complex changes in the nation’s tax code matters because it directly affects the amount of capital individuals and businesses are able to both earn and invest in commerce. In anticipating the effects of the Tax Cut and Jobs Act on your business, consult with an experienced Fremont business law attorney.



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