14 THE QUEENS COURIER • JUNE 1, 2017 FOR BREAKING NEWS VISIT WWW.QNS.COM Taxation of Pass-Through Entities SUMMER SAVINGS 10% OFF ANY PURCHASE With Coupon. Not combinable – New Orders Only. Limit 1 per customer. $150.00 max for discount. Excludes Repairs, Re�� nishing, Rewiring. Exp. 6/30/17 ������������������ �������������������������������������� – Call for a FREE���������������������������������� ���������������������������������������������������������������������������������� �������������������������������������������������������������������������������������� �������������������������������������������������������������������� ���������������������������������������������������������������������������������� ������������������������������������������������������ ���������������������������������������������������������������� �������������������������������������������������������� ������������������������������������������������������������������������ �������������������������������������������� ���������������� Spanish John A. Golden: Member of K. of C. and C*KHS; Thomas A. Golden III: Member AOH, KHS (Owner, Operators) ������������������������������������������������������������������������������������������������������ �������������������������������������������������������������������������������������������� ������������������������������������������������������������������������������������������ Please Visit Our Website @ www.gleasonsfuneral.com Martin A. Gleason Funeral Home L.L.C.: The Preferred Choice BY JOHN SAVIGNANO As Republicans carry on with tax reform… There are lots of details they need to firm up. One is the taxation of pass-through entities…partnerships, S corporations and LLCs, the income of which is reported on their owners’ tax returns…as well as sole proprietors who file Schedule C. According to the IRS statistics, 3.6 million partnerships and 4.3 million S corporations filed returns in 2013, compared with 5.9 million regular corporations . In 2014, 24.6 million 1040s with Schedule C were filed. President Trump wants a 15% corporate rate, which he’d apply to business income of pass-throughs and sole proprietors. The House Republican plan released last summer advocates for a 20% corporate rate…25% for businesses that pass income through to their owners and self-employeds. Pass-throughs support the idea of tax rate parity with regular corporations. But Trumps’s plan could encourage gaming of the tax system. That’s because his desired 15% business tax rate is far below the maximum 35% rate that he is proposing for individual taxpayers. For example, high earning employees could be incentivized to become independent contractors or to set up their own LLCs to take advantage of the lower business tax rate. Owners of pass-through businesses would be highly encouraged to reduce their salaries and take more profits instead. Applying a 15% tax rate to pass-throughs is also costly… up to $1.95 trillion in lost tax revenues over the next 10 years. Tax experts point to Kansas to illustrate the issues they’re concerned about. In 2012, Kansas enacted a law exempting passthrough firms from state income tax as part of a broad tax cut plan. The result was that many individuals and corporations in the state set up or restructured their businesses as pass-through entities to take advantage of the tax break. The number of pass-throughs has almost doubled in the few years since the law was passed, and the state now faces large budget deficits. The pass-through exemption alone is estimated to have cost the state $472 million in 2014 and even more in 2015. A bipartisan group of state legislators have since voted to kill the loophole, but their efforts have so far been rebuffed by the governor’s veto. The Trump administration is pondering ways to curb the potential for abuse that comes with a low tax rate for pass-throughs, but has provided no details yet. Among the possible options: Implementing a phaseout of the 15% rate for upper-income passthroughs, so that income above a threshold amount would be taxed at the individual rate. Excluding certain types of activities, or taxpayers engaged in personal services such as lawyers, engineers, and doctors, from qualifying for the 15% rate. Also, limiting the low rate to active business profits of pass-throughs after subtracting an amount for owners’ reasonable compensation. But any fixes to prevent gaming would add more complexity to the tax code. And tax-savvy practitioners would still be able to find loopholes to exploit. John Savignano is a partner with Savignano Accountants & Advisors located at 47-46 Vernon Blvd., Second Floor, in Long Island City. For questions, dial 718-707- 0955. TAX TIPS
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