First, no corporate tax increase has passed. President Biden floated a long list of wants for a proposed tax plan to a Joint Session of Congress on April 28, 2021, but presidential speeches don’t make legislation.
You can read the Fact Sheet for the American Jobs Plan on the White House’s official website. Rolled into the American Jobs Plan is the Made in America Tax Plan. The goal of the Made in America Tax Plan is to strongarm U.S. companies into bring production and jobs back home from overseas.
Biden’s complaints were specifically, “profitable corporations should not be able to get away with paying little or no tax by shifting jobs and profits overseas.”
If your SMB does neither of those things, this tax plan likely isn’t targeted directly at you, but that doesn’t mean it won’t make ripples that could impact your business.
It should once again be reiterated that neither of these tax plans have been passed, but the essential goal of this proposal is to:
To accomplish those goals, the plan will:
Current tax law allows multinational corporations to benefit from a tax exemption on the first 10 percent return on foreign assets and get the other 90 percent taxed at half the domestic corporate tax rate.
Anything is possible – but getting the bulk of these proposals through congress, especially a congress that is relatively evenly split and likely to go Republican during the 2022 midterms, is highly unlikely.
It’s possible Democrats will quickly push for an increase to the current 21 percent corporate tax rate, but it’s unclear whether the White House will get the 28 percent it seeks.
If you do own a C-corporation in Arizona then yes, it is possible your corporate income taxes will increase. However, it is unlikely that congress or the president will push for a return to the 35 percent corporate tax rate imposed on the nation’s corporations before the Tax Cuts and Jobs Act (TCJA) of 2017.
Many small businesses are limited liability companies, sole proprietorships or S-corporations, which means owners are frequently taxed at the personal income tax rate. In those cases, how much you personally make will determine how much proposed income tax increases will affect you.
Biden’s proposed plan would increase the 37 percent top income tax rate to 39.6 percent. The current 37 percent top rate applies to people with incomes higher than $523,600 or couples with $628,300, so many small business owners might not be affected at all.
The proposed increase on capital gains likely won’t affect the vast majority of businesses, but it does represent a significant increase. Biden proposed raising the current 20 percent capital gains tax up to the same level as the income tax rate, so top earners would be charged 39.6 percent on capital gains.
The Biden administration argues their proposed plans will be a boon for small businesses nationwide by:
It’s hard to say how a proposed tax plan will affect small businesses until the proposed law is reviewed by a group like the congressional budget office. Even then, the U.S. House or Senate may require significant changes to pass it – or it could fail to win passage at all.
It’s probably too early to start making predictions on exactly how you could see your taxes change, but there are things you may be able to do today to protect your business.
The business tax accountants and consultants at H&H Accounting Services is committed to helping business owners minimize their tax burdens while maintaining compliance with all necessary rules and regulations. If you want to make sure your business is prepared for whatever comes next, we’d be happy to help.
Call us at (480) 561-5805 to schedule your free consultation.
