Analyzing Possible Implications of the Proposed C Corp Tax Increase


News Finance

In a recent presentation, MICPA board member Leon LaBrecque, JD, CPA, CFP, CFA at Sequoia Financial Group partnered with Wayne Roberts, JD, MST, CPA and co-Chair of Business Tax Practice at Bodman Law, to discuss what-if scenarios for various components of President Biden’s tax plan. As many of these components and their impacts are rather intricate, from capital gains to Social Security, this article will be the first of a series based on this presentation and supported by other sources which will focus on one tax issue at a time.

As small businesses and corporations continue to build back in 2021, it only seems logical to start with the potential impacts of current proposed legislation on business. According to LaBrecque, current discussions include a 28% tax on C corporation income, which is projected to increase tax revenue over ten years by $1,300 billion. Further, should the proposed rate pass at 28% without further negotiation, this could result in lowered S&P earnings by an estimated nine percent.

While the purpose of the legislation aims to target the wealth of larger corporations the likes of Amazon, many small business experts are wary. In a CNBC report, vice president of federal government relations at the Nation Federation of Independent Business Kevin Kuhlman stated, “The target here is the largest corporations, many listed as paying no corporate tax, but the problem with that is that two-thirds or even more than that of corporations are small businesses.”

Kuhlman explains that the recent tax proposal for C corps does not mention any graduating scales of taxation for smaller, lower-earning companies. A concern, according to Kuhlman, because the majority of C corps have receipts totaling less than $1 million1.

So, what should be done now to prepare? According to LaBrecque, some companies will be accelerating the timing of corporate income ahead of the bill’s likely effective date. Later considerations could include shifting away from direct corporate income with compensation versus distributions, splitting entities and looking at more non-consolidated entities.

LaBrecque further points out that the C-corp and pass-through rates are interconnected through the Tax Cuts and Jobs act (TCJA) and suggests that pass-through taxes will change. “If you change the C-corp. rate, it follows that they will have to change the Qualified Business Income (QBI) deductions for pass-throughs,” observes LaBrecque.

Advisors will want to ensure their business clients are following these developments closely as some form of tax increase to C corps is likely, though the exact percentage is not yet final. The MICPA will continue to monitor developments regarding the corporate tax increase proposals as they occur. Logon to MICPA Connect to continue this discussion and share ideas, predictions and insights with other members like you.

  1. Rosenbaum, Eric. “Biden’s Tax Plan Targets Big Companies…CNBC. 1 May 2021. Accessed on 3 May 2021

Source: MICPA

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