House committee OKs small business tax changes

NEW YORK, Nov 13, (RTRS): The House Ways and Means Committee last week approved a revised bill that would lower taxes for many small business owners, and Senate Republicans are also proposing changes in the tax laws.

The House bill provides for a 25 percent tax rate for many sole proprietors, partners and shareholders in what are known as S corporations. These owners have what are called passthrough companies because their business income is not taxed at the company level, but passes to their 1040 returns. The bill also creates a 9 percent rate for the first $75,000 in earnings by some smaller pass-throughs.

The Senate bill would let business owners deduct some earnings and then pay at their individual rates on the rest.

Several small business groups have long advocated for a change in tax rates because some owners’ business income has been taxed at individual rates as high as 39.6 percent under current law while the corporate tax rate has been 35 percent.

The tax bill also includes numerous proposed changes in individual taxes, including a consolidation of the current seven tax brackets into four. The top rate would be 38.5 percent.

Both bills would drop the corporate tax rate to 20 percent, but the Senate bill would delay its effective date for a year. They would also allow for larger deductions on some kinds of equipment purchases.

The House bill’s treatment of passthrough taxes was more generous than an earlier proposal that would have allowed only 30 percent of an owner’s business income to be taxed at 25 percent.

Small business advocates were split about the revised House bill.

“It includes real tax relief, allowing small business owners to keep more of their money to invest in growth and create new jobs,” said Juanita Duggan, CEO of the National Federation of Independent Business.