President Donald Trump signed a tax-overhaul bill, delivering a major tax cut to U.S. corporations along with a package of temporary cuts for other businesses and most individuals.
The bill slashes the corporate tax rate to 21 percent from 35 percent and cuts individual tax rates across the board. So if your corporation has net profit your tax percentage as a proportion to the net profit will be lower than years before. This Trump feels will make United States corporations more competitive in the global market. He has felt that because if the high percentage of taxes that the U.S. Corporations have to pay, reduces the competitive abilities of these U.S. Corporations. Trump said the bill will prompt abandoned factories to come back to life. He said Bob Kraft, owner of the New England Patriots, called him to say he’s buying a new paper plant in North Carolina because of the tax law. Of course this is just one event. This will have to play out in the months to come to see if that is the case. President Reagan preached in the 80’s the “trickle down effect” lets see if this idea works in the real world.
In this case a 21% tax rate is significantly lower than the 35% tax rate. For high earning individuals with LLC’s that are disregarded entities a switch to establishing a C Corp may, if formed correctly, lower your taxes by thousands of dollars. Also if your health insurance costs are high this tax planning strategy can help you to expense your health insurance within the corporation structure.
Overall, the bill is projected to decrease federal revenue by almost $1.5 trillion over the next decade. Trump and GOP leaders have said they expect the business tax cuts to spur enough economic growth to make up for the revenue loss. In other words, the federal government is willing to have a temporary revenue decrease in order for the economy to spur economic growth which will over compensate for the loss in tax revenue. So this income tax overhaul bill is intended for business owners to save money on their income taxes so that they can spend the savings wisely and inject capital into the economy so to add more jobs and more business profit activity. At the end of the day the businesses that maximize the income tax incentives will be the ones who gain from this new 2017 income tax legislation,