PLANNING FOR CHANGING TAX POLICIES
Not surprisingly, given the current landscape of significant, proposed policy changes and record-high government debt, taxes are top of mind for business owners. In fact, concerns about higher taxes are significant enough to cause nearly half of respondents to evaluate relocating their primary residence and/or business to a different state.
of business owners have considered moving their business headquarters, primary residence or both to reduce taxes
of respondents with business revenue exceeding $50 million per year have considered moving their business headquarters
of business owners overall are concerned about the tax implications of transitioning their business
of owners with businesses that generate more than $50 million in annual revenue are concerned about the tax implications of transitioning their business
While much uncertainty exists around the ultimate form of tax policy changes, there are a number of personal and business planning strategies to consider in light of the proposed changes.
CORPORATE TAXES
The Biden administration has proposed raising the corporate tax rate from 21% to 28%, effective January 1, 2022. President Biden also has proposed making all pass-through business income from limited partnerships, limited liability companies and S corporations of high-income taxpayers subject to either the net investment income tax or Self Employment Contributions Act tax.
BUSINESS PLANNING STRATEGIES FOR CORPORATE TAXES
1.
Revisit the entity structure of your business
Model various cash flow scenarios (C corporation versus a pass-through entity such as an S corporation or partnership), taking into account the cost and timing of converting from one entity to another, whether you plan to reinvest cash flows into the business or distribute them to your shareholders, and other tax implications, such as employee payroll taxes.
2.
Review your business’ operating model
Look for opportunities to offset any potential increase in corporate taxes by taking advantage of new proposed tax credits for businesses that invest in “clean energy” initiatives and business expenses incurred in support of onshoring jobs.
3.
Consider the timing of placing assets into service
Delay certain large-scale capital expenditures until 2022 to increase your tax savings from depreciation if the corporate tax rate increases next year.