AIA Overview of Senate-Approved Tax Bill

Posted on by cguske

The Senate approved the most sweeping tax rewrite in decades in early December by a vote of 51–49. The vote on the nearly 500-page bill was nearly along party lines — with only one Republican, Sen. Bob Corker (R-TN), voting against it. On the House side, a substantially different bill was approved on Nov. 16 by a vote of 227–205. The significant disparities between the two bills must be hashed out in conference before the final version can be sent to the President’s desk for signing. Check out a summary of the major the differences between the bills here Update – specific provisions H and S. Edit: As this article was being finalized, it looks as if the Senate and House negotiators have just come to a compromise.

Pass-through companies:
Some pass-throughs get a new deduction for reducing their tax burden. For partnership, S corporations, and sole proprietorships, the deduction would be limited to 50% of the taxpayer’s share of “W-2 wages” — those that are subject to withholding, elective deferrals, as well as deferred compensation. If a pass-through didn’t pay W-2 wages, it couldn’t use the deferral. The wage limit wouldn’t apply to taxpayers with income of $250,000 or less for individuals, or $500,000 or less for joint filers (indexed for inflation). The limit would phase in for taxpayers with incomes greater than those thresholds. The deduction would be limited for certain professional services — including those in architecture, health, law, engineering, and accounting. It would be fully available for services businesses with income of $250,00o or less for individuals or $500,000 or less for joint filers (indexed for inflation) and would phase out for incomes greater than those thresholds.

Lower taxes on pass-through business income:
Both the House and Senate bills lower taxes on the business portion of a filer’s pass-through income. The House bill dropped the top income tax rate to 25% (from 39.6%) while prohibiting anyone providing a professional service from taking advantage of the lower rate. It also phases in a lower rate of 9% for businesses that earn less than $75,000. The Senate bill lowers taxes on filers in pass-throughs by letting them deduct 23% of their income (up from 17.4 originally). The 23% deduction would be prohibited for anyone in a service business — except those with taxable incomes under $500,000 if married ($250,000 if single).

What does it all mean?
Most U.S. businesses are set up as pass-throughs (sole proprietorships, partnerships, LLCs, and S corps), rather than traditional corporations. Their profits are passed through to the owners, shareholders, and partners, who pay tax on them on their personal returns under ordinary income tax rates — rather than being filed on a separate business return like a corporation. Currently, pass through pay taxes topping out at 39.6% while corporations pay 35%.
Right now, architects are exempted from benefitting from the preferential tax rate. The relevant section of the Internal Revenue Code referenced in both bills is IRC 1202(e)(3)(A). It reads, “… the term ‘qualified trade or business’ means any trade or business other than—
(A) any trade or business involving the performance of services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, or any trade or business where the principal asset of such trade or business is the reputation or skill of 1 or more of its employees …”

Here’s the status of a few other tax items that we’ve been following:

Historic Preservation Tax Credit
The federal Historic Tax Credit (HTC) was eliminated in the tax reform bill passed by the House, but the Senate approved a version that eliminates the 10% credit for rehabilitation of any structures built before 1936. The 20% credit for certified historic structures would be retained but spread over five years.

179(D) Energy Efficiency Tax Deduction
Neither of the bills includes a renewal of 179(D) which expired at the end of 2016. It is unlikely that Congress will choose to pass an extender package, meaning firms shouldn’t count on being able to utilize this tax benefit moving forward.

AIA Takes Leading Position in New Tax Reform Coalition

Posted on by cguske

The National American Institute of Architects (AIA) announced on March 22 that it has signed on as a charter member of “Parity for Main Street Employers” (PMSE), a coalition pushing for comprehensive tax reform that treats small business fairly.

Formerly called the Pass-Through Coalition, the Parity for Main Street Employers steering committee is made up of nine national trade groups actively representing private employers in the tax reform discussion. The group’s general membership is made up of those trade groups that have signed on to the tax reform principles letter that forms the core of the group’s advocacy efforts.

On March 17, a letter was released ahead of the hearing on Tax Reform before the Federal House Ways and Means Tax Policy Subcommittee. The letter, which was signed by more than 100 business groups including the AIA, calls on Congress to enact tax reform that is comprehensive, restores tax rate parity for all businesses, and reduces or eliminates the double tax imposed on corporations.

“Almost 80 percent of AIA members are small businesses,” said AIA President Russ Davidson, FAIA. “Any attempt to reform the tax code must protect such small businesses and restore rate parity between corporations and so-called pass-through businesses that contribute more than 50 percent of business income to America’s economy.”

“The AIA is proud to be a part of the PMSE as well as serve on its steering committee,” Davidson said.

The letter closes, “By embracing these broad concepts, Congress can move the taxation of business income in a direction that helps all employers, regardless of how they are organized, to invest and create jobs here in America.

About Parity for Main Street Employers
Parity for Main Street Employers represents more than one hundred national business groups representing millions of Main Street employers.  The coalition’s Steering Committee is made up of eight national trade groups – American Council of Engineering Companies, American Institute of Architects, Associated Builders and Contractors, Associated General Contractors of America, Independent Community Bankers of America, National Beer Wholesalers Association, National Roofing Contractors Association, S Corporation Association, and National Association of Wholesalers – while the general membership is made up of groups that have signed the letter outlining the three principles they believe tax reform should follow – comprehensive, restore rate parity, and reduce or eliminate the corporate double tax.

White House Proposal for Business Tax Reform

Posted on by cguske

by Kyle Wingfield, Esq.

On February 22, 2012, the Obama administration issued The President’s Framework for Business Tax Reform (the “Proposal”), an outline for what would be the first major overhaul of the U.S. Tax Code since 1986.  In broad form, the Proposal would reduce the top income tax rate for corporations from 35% to 28%, increase revenues by eliminating dozens of perceived tax loopholes and deductions to broaden the overall tax base and create new disincentives for U.S. businesses to shift operations overseas, including, for the first time ever, a minimum tax on foreign earnings.

Corporate tax reform undoubtedly will become a major issue during the 2012 presidential campaign, but significant changes are probably years away.  Individual taxes will be addressed first, as the Bush tax cuts are scheduled to expire at the end of the year.  Then, as with all significant legislation, corporate tax reform will be subject to intense lobbying in Congress.

Nevertheless, we believe that some version of corporate tax reform is coming within the next few years.  The U.S. will soon have the highest statutory corporate tax rate among all advanced countries, and most Democrats and Republicans agree that the current system is uncompetitive, inefficient and overly complicated.

The following discussion summarizes the key aspects of the Proposal in further detail.  Although corporate tax reform will look markedly different when enacted, it is important to consider the reforms President Obama proposes and what they could mean for your business.  More>>

 

Kyle Wingfield is an Associate with Williams Mullen. He focuses his practice on the taxation of businesses, with a particular emphasis on corporate and international tax matters.  Read his complete bio.

Williams Mullen provides legislative counsel to the Virginia Society AIA and its legislative partners: The American Council of Engineering Companies/Virginia and the Virginia Society of Professional Engineers