Waypoints: Ideas and Insights to Navigate Enterprise Complexity

One of the significant changes made by the Tax Cuts and Jobs Act (TCJA) was to slash the top C corporate tax rate from 35% to a permanent flat 21% effective January 1, 2018. Individual tax rates were also lowered but not permanently with the highest tax bracket dropping from 39.6% to 37%. As a result, some S corporation owners may consider converting their business entity type to a C corporation to enjoy the lower 21% tax rate. This conversion decision should not be based solely on the difference in tax rates. Several factors need to be examined, and unfortunately, there is no "one size fits all" answer.

On December 22, 2017, President Trump signed sweeping tax reforms into law. As a result of the new and modified federal provisions, state conformity has become a popular topic of conversation among tax practitioners. Many states will have to make difficult decisions, and several have already started the process.

The largest re-write of US tax law in over 30 years is now complete and subject only to the President’s signature. The details are voluminous and initial guidance should appear in the next few weeks. However, as most of these provisions are in effect starting 1/1/18, it is important now to understand the major changes at least at a high level so we can ask the right questions as we engage in end-of-the-year tax planning. Here's a look at some of the highlights in the new tax plan and how they'll affect you:

The House Ways and Means Committee just released the details of their tax reform bill and will start hearings next week. The Senate Finance Committee will roll out their companion legislation in the next couple weeks.

Many of the provisions are similar to those of the joint framework released in late September. However, now we have more specifics, albeit with many gaps still remaining.

After fits and starts over the last nine months, a broad tax reform plan is now beginning to emerge between Congress and the White House.

Last week, President Trump released an outline of his tax plan. Many of you have probably seen or heard a few different snippets from it. While it was written very broadly, it is instructive on the administration’s thinking. It follows the House Republican “Better Way” plan in some respects but also has some major differences. 

Since last year's election campaign began, a consistent chorus from politicians has been the need for tax reform. While Republicans and Democrats will disagree on the details, the overall notion is popular. Now, with control of both houses of Congress and the White House, it would seem that Republicans could move a plan of their choosing with little problem.

After one of the most memorable and acrimonious presidential campaigns in American history, Donald Trump stunned observers by defeating Hillary Clinton to be elected the 45^th President of the United States. Additionally, the Republican Party maintained control of both the House and the Senate.

This combination will give Mr. Trump and a Republican Congress a unique opportunity to shape many areas of policy, such as health care, regulatory reform, defense spending, immigration and more. However, near the top of that list will almost certainly be taxes. 

Recently, House Speaker Paul Ryan and Ways and Means Committee Chairman Kevin Brady released a blueprint for comprehensive tax reform. While these proposed changes are not authored by either presidential nominee, they will likely be an integral part of any tax reform taking place in 2017, assuming the Republicans maintain House control. The blueprint is a step towards tax law simplicity and is pro-growth, leading some to believe the Senate might take action on similar legislation as well.