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According to the Small Business Administration (SBA), there are 28 million small businesses in the United States. Furthermore, the SBA boasts that small businesses provide 55% of all jobs in the US. Most of these businesses pay taxes as S-Corporations, which are pass-thru entities. The S-Corporation doesn't pay any taxes, and the profits (or losses) simply flow through to the shareholder. The taxes on the income earned is then paid at the shareholder’s ordinary tax rate, which can be as high as 39.6%.

President Trump released his tax plan last week, and it was touted as a tax cut for the rich. I would like to take exception to that. For these small business owners, most of whom are considered middle class, it means paying taxes at 15% rather than at a much higher tax bracket.
The question would be, What would these business owners do with their tax savings? They could hire more employees or they could expand their businesses. Do the wealthy benefit from these tax savings? Of course they do. Just think about what could be done with the extra money that a large US company would save.

Currently, C-Corporations, which include most large businesses, pay at a tax rate of 35%. This is the highest business tax in the world. That has caused these companies to move offshore to places like Ireland, where the tax rate is 15%. They have taken their money, their jobs, and everything else with them, all to avoid paying income taxes at a higher clip than in other countries. The money that is made overseas is only taxed in the US when the money is repatriated.
Something that was not included in the proposal, but that has been discussed is direct expensing of investments for businesses.

Currently, these companies that invest in equipment or anything else have to recover the expense of their investment over time. Direct expensing would allow companies to see a true tax savings immediately instead of over a period of time. This direct expensing would be countered with the fact that the company is not able to write off any interest on capital expenditures. However, if you think about it, who cares? The full cost of the investment is being written off in the current year.

The plan discussed last Wednesday discussed a change from seven tax brackets to three. I don't see that happening, but let's entertain the change for a second. What wasn't discussed was the income levels at which these tax brackets would change. Currently, on investments, if you are in the 15% tax bracket or lower, you don't pay any capital gains tax. Would that remain the same?

Historically, tax changes come from the Ways and Means Committee in the House of Representatives. However, could this plan from the President at least jumpstart a discussion on tax changes?
The point here is that when you understand taxes, you will get frustrated when you see headline after headline saying that the tax plan the President promoted is for the ultra-wealthy. Next time you hear that, think of all of those middle class S-Corporations that would benefit as well.
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