Our new president has proposed a reduction in business taxes to 15% from the current top tier of corporation taxes at 35% and for sole proprietor, partnership and S-corporation taxes at 39.6%. Whether all business entities would enjoy the lower rates or not remains to be seen but Trump would like to see it flow to them all. The complexity of actually making that work is quite substantial as it raises the differential between business and non-business income substantially. This would be a windfall for most business owners in business taxes. There are many other changes proposed as well, but these are the ones most relevant to this article. Other Trump proposed changes will be discussed in future articles.
What does this mean to you if you are a business owner paying business taxes?
Well if you are a business owner and you are accustomed to putting as much away as possible into a retirement plan such as a 401K or a SEP in order to reduce your taxable income, you’re going to need to think again. Where now you might save 25-39.6%, depending on what your income level is, with a business tax rate of 15% it may no longer make sense because you’d only save 15%. This could cause you to end up in a 25% bracket later on when you are retired and taking the money out. That is quite likely because not only will the withdrawal be taxed, it may have the negative side effect of causing your as much as 85% of your social security income to be taxed as well.
As a result its worthwhile taking a look at alternative types of retirement arrangements, such as a Synthetic Roth plan, where there are no income limits to qualify and you can get a partial business deduction now without having to pay taxes upon withdrawals later. This also reduces the chances that your Social Security will be taxed.
If you are worried about what might happen to your taxes under President Trump, feel free to call us for a free Tax Analysis. We’ll tell you where your opportunities lie, and work with you to take maximum advantage of any new rules!
For more information visit: http://deductiondetectives.com
For more information visit: http://deductiondetectives.com