- House and Senate Republicans have worked out a final tax plan, which includes a 20% deduction for certain pass-through businesses.
- Republicans have presented the provision as a benefit for small business owners, but some experts have criticised it as a boon to the 1%.
- Small Business Labs estimates the plan’s pass-through policy will primarily benefit top earners.
The finalised Republican tax plan throws a 20% tax deduction the way of pass-through businesses.
Pass-through businesses – including LLCs and S-corporations – don’t pay corporate taxes. Instead, income “passes through” to the owner, who then pays taxes on the earnings.
The House initially proposed a 25% reduced tax rate on business income from pass-through businesses, while the Senate’s initial plan called for a 23% deduction.
Business Insider’s Bob Bryan reported that Republicans have presented the provision as a benefit for small business owners. It includes guardrails designed to prevent firms such as hedge funds from claiming the deduction.
But the measure has been criticised by some as a boost to the 1%. According to Small Business Labs, this provision will likely benefit the wealthiest of pass-through business owners, but not highly-paid professionals who run “service firms,” including doctors and lawyers.
Here’s a look at some occupations that are likely to benefit most from the plan:
Tax accountants and attorneys
Politco’s Bernie Becker reported the new plan is causing “real-world turmoil” as everyone scrambles to figure out how the bill affects them. So tax attorneys and accountants will likely see a boost in business – even the bill itself doesn’t contain any tax-related goodies for them.
Real estate development fund owners
Business Insider’s Bob Bryan reported that the provision “would allow owners of business that hold certain types of depreciable assets, such as real estate, to receive a significant deduction on their profits.”
Small Business Labs reporters the owners of “very profitable” real estate development firms will also benefit from the plan.
Some small business owners
Small Business Labs predicted small business owners in the 35% or 39.6% tax bracket – meaning those who make over $US416,700 a year – will see “a tax reduction on their business income.”
Small business owners earn an average annual salary of $US68,897,according to PayScale.
Some freelancers and contract workers
According to Small Business Labs, most consultants – freelancers or other contract workers who are not paid as employees – will not be able to find a way around the plan’s “guard rails.” But they predicted some high-earning consultants may slip through and benefit from the policy change.
Architects and engineers
Small brewers and distillers
Christmas tree farmers
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