A tremendous amount of thought and energy is going into a potential way to revamp the corporate tax system. With subsequent changes to the individual tax rates, there is alarm with many experts.
It is believed that corporate tax reform needs to be paired with an overhaul on the individual side. If just corporate rates were trimmed along with offsetting reductions in business tax credits and write-offs, sole proprietors and owners of S-Corps, LLCs and partnerships would be taxed at a severe disadvantage.
These businesses are essentially flow through entities that are taxed on the personal returns, so they pay tax at individual rates on their net profits. As a result, their taxable income would rise because the write-offs would be cut. So there would be no drop in their tax rates.
Initial thoughts have a plan that would apply a special tax rate to business income of individuals, much like the special maximum tax rates for dividends and long-term capital gains.
All we can do is wait and see what comes out of Congress. After that the President needs to sign before we have anything to be concerned about.