Proposed tax changes- affect on reasonable salary

[kathyc2]

Has anyone else paid attention to the tax proposals where tax from business income, including pass through, will be taxed at a lower rate than the regular marginal rates? Trump tax plan wants it to be capped at 15%, House tax plan that came out yesterday caps at 25%, and HR5374 which has been referred to the Ways and Means Committee has tax on pass through income of 10% for first 150K and then 20% up to 1M.

We all know that reasonable salary is currently very open to opinion. Adding the marginal rate difference to the FICA difference and determining what is "reasonable" would be even more important.

I don't think the pols proposing this have any idea the can of worms they will be opening.

[Rapid Robert]

Has anyone else paid attention to the tax proposals where tax from business income, including pass through, will be taxed at a lower rate than the regular marginal rates?

Not me, but we all know the signal-to-noise ratio of politicians usually approaches zero.

I don't think the pols proposing this have any idea the can of worms they will be opening.

Oh, they do. The Uber drivers and other middle-class wage earners are already in the 10% or 15% tax bracket, so it won't benefit them. It's just tax break for the wealthy, but they will lie about that. It's what politicians do.

[Rapid Robert]

Has anyone else paid attention to the tax proposals where tax from business income, including pass through, will be taxed at a lower rate than the regular marginal rates?

Maybe this is one of the proposals you are talking about?

http://newsletters.usdbriefs.com/2016/Tax/TNV/160624_1.html

[kathyc2]

Oh, they do. The Uber drivers and other middle-class wage earners are already in the 10% or 15% tax bracket, so it won't benefit them. It's just tax break for the wealthy, but they will lie about that. It's what politicians do.

Discussions on whether a tax is "fair" or not are fruitless. I was merely letting people know that we may be facing a different marginal rate if the income comes from a pass-through and that it may effect reasonable salary, which is a very subjective number.

[Rapid Robert]

Discussions on whether a tax is "fair" or not are fruitless. I was merely letting people know that we may be facing a different marginal rate if the income comes from a pass-through and that it may effect reasonable salary, which is a very subjective number.

I'm wondering if it wouldn't shift favorable bottom line back to Sched C in some cases.

Compare sole prop and S-corp each with $100K net profit.

Sole prop: pay SE tax on full amount, but ALL profit taxed at lower rate (?)

S-corp with $70K compensation: avoid SE(payroll) tax on $30K, but pay FULL tax rate on $70K.

If someone is going to deliberately underpay compensation for S-corp, that's one thing; but if someone pays reasonable comp, then maybe S-corp benefit is no longer always there.