Richard Bruner and Carl Berry provided insight on the Trump administration’s comprehensive tax reform framework and its potential impact on businesses in a November 14, 2017 article for the Daily Business Review. The new tax framework, released on September 27, conveys objectives like tax relief for the middle class and businesses. Though it is unlikely that the reform will be adopted before 2018 – and any legislation actually enacted will differ from the proposed framework – businesses should still be aware of key proposed changes and their potential effects.
A significant part of the tax reform highlights tax rate reductions for both C corporations and small businesses, but does not express what constitutes a small business or C corporation. “In light of the proposed rate reductions, businesses may want to consider delaying the formation of new entities until the differences between C corporations, S corporations and partnerships are determined,” explained Bruner and Berry.
The new framework also aims to encourage new investment in the U.S. by permitting businesses to instantly expense the cost of new investments in depreciable assets for at least the next five years. “The expensing of capital investments could lead to an uptick in private M&A activity, particularly if this treatments extended to goodwill and other intangible assets, which are currently expensed over a 15-year period.”
One way the tax reform plans to offset the reduction in collected tax revenue is by limiting deductions for the net interest expense incurred by C corporations – resulting in a higher tax rate for C corporations. However, a highly favored part by Republican lawmakers is the elimination of the estate tax, and the current tax reform proposal plans to execute that. “If the estate tax is eliminated, the tax rules relevant to business succession planning will fundamentally change.”
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