The answer to this question is “it depends.” What was proposed by Trump’s Administration last week in the form of a “Framework” is broadly laid out. The details will be forthcoming in the legislation that will be drafted by committees, but some of the relevant highlights for design professionals are as follows.
One of the stated goals is simplification of the tax code. To that end, the Administration proposes to consolidate seven (7) personal income tax brackets into three (3): 12%, 25%, and 35%, with the possibility of an additional tax bracket that would apply to the highest income earners. The “Framework” also asserts to cap the tax rate on C-corporations at 20%, and 25% for other business entities (e.g., sole proprietorships, partnerships, LLCs, and S-corporations), which are also (and this is important) referred to as “pass through” entities.
Determining whether this “Framework” is favorable or not to your circumstances depends a great deal on:
- your personal income tax bracket and the changes being proposed;
- the deductions that are ultimately eliminated;
- how key terms are defined;
- how certain tax credits and exemptions that could be eliminated impact your business; and a host of other very important details.
All of these important elements of the legislation are critical for accurately measuring the implications to your business. In other words, it’s simply not possible to assess in a meaningful way what the “Framework” actually means to anyone regardless of what you might read in the news…and that’s the tight rope being walked at the moment by lawmakers.
The more details that are released to the public in advance for consideration, the more complicated the bill drafters’ jobs get and the more chances there are for possible failure. This is what makes public policy so complicated—it rightfully involves input from many stakeholder interests because it directly impacts so many stakeholders’ interests.
In the coming weeks and months, more details will be forthcoming, that is, if as Senator McCain has stressed, our legislative branch returns to “Regular” order of business where hearings are held, legislation is reviewed and commented on, witnesses are called, and the public has an opportunity for input. When/if that happens, we’ll understand better what tax reform actually means for everybody, especially design professionals.