Our nyc CPA firm is dedicated to providing tax advice and tax updates to self-employed businesses on a regular basis. While tax reform laws are likely still to take effect many months if not years from now, it is important, especially for small business owners to keep up to date on potential tax law changes.
As Congress prepares to tackle tax reform when it returns from its August recess, reports are already swirling that disagreement among Republicans on how to approach tax reform may stifle efforts. The House Ways and Means and Senate Finance Committees (SFC) are currently drafting tax reform legislation expected to be unveiled this fall (TAXDAY, 2017/07/28, C.2). However, the details of such legislation remain unclear, even among some congressional taxwriters.
White House Press Secretary Sarah Sanders said in an August 8 tweet that President Trump had productive conversations on tax reform with House Speaker Paul Ryan, R-Wis., and other members of Congress. The administration and top lawmakers recently released a joint statement presenting a united front on forthcoming tax reform legislation, but key details, such as what personal exemptions will remain and what the proposed individual and corporate tax rates will be, remain uncertain.
Small Business Benefits
Senate Small Business and Entrepreneurship Committee Chairman Jim Risch, R-Ida., and ranking member Jeanne Shaheen, D-N.H., sent a bipartisan letter during the week of July 31 to SFC Chairman Orrin G. Hatch, R-Utah, and ranking member Ron Wyden, D-Ore., urging comprehensive tax reform that will benefit small businesses. “Small businesses are the backbone of our economy, creating two out of every three net new jobs in the U.S.,” Risch and Shaheen wrote. “That is why it is essential that any tax reform considered by the Senate take into account the unique burden that the federal tax code imposes on small businesses and ensure that Main Street businesses benefit from tax reform.”
While Republican lawmakers often outline the importance of tax rate reductions for passthrough entities, Democrats generally caution against any changes that would allow wealthy individuals the tax benefits of a lower rate for passthrough businesses. Risch and Shaheen both cautioned SFC leaders against allowing wealthy taxpayers to take advantage of passthrough rates. “Any reforms to the individual side of the code should focus on benefitting truly small businesses, and any potential preference for passthrough business income must include appropriate safeguards in order to prevent abuse and mischaracterization of income,” they wrote.
Scope of Reform
One of the most significant challenges for Republicans is agreeing to the scope of any tax reform legislation, according to several reports. After the failed GOP health care reform efforts in the Senate, some lawmakers are thinking smaller scale tax cuts are more likely to be achieved than a broad, comprehensive tax reform package.
Meanwhile, Democrats remain united in their opposition against any tax reform proposals that could potentially benefit the wealthy, which could make bipartisan talks difficult. Meanwhile, Republicans are calling for tax rate cuts across the board for all taxpayers. In a recent letter, 43 out of 45 Senate Democratic caucus members said they would not support tax reform legislation that provided a tax cut for the ” top 1 percent,” (TAXDAY, 2017/08/02, C.1).
Adding to the complexity, Congress has at least two other competing priorities when it returns to Washington. Although top House and Senate lawmakers maintain tax reform is the top priority, Congress faces September deadlines to pass a new federal budget and raise the debt ceiling as the new fiscal year, beginning October 1, approaches.
Do you have questions about potential tax reforms and their impact on your small business? Contact our nyc cpa firm for more information.