President Obama’s tax plan to lower business taxes doesn’t help small business.
As part of his plan to reform the tax code, President Obama has called for lowering marginal tax rates on corporate income. According to the President’s plan, announced in the State of the Union Address, the top corporate marginal tax rate would be lowered from 35 percent to 28 percent. While this is a welcomed proposal, the benefits to small businesses are negligible.
The overwhelming majority of small businesses are structured as “pass-through-entities”, which means that the business does not pay taxes on its profits. Instead, the profits “pass-through” to the owners’ tax returns and they pay taxes on the income. The ability to do this allows small business to avoid double taxation. A non-pass-through entity, like a standard C Corporation, must pay taxes on its profits. Then when the owners take money out of the company in the form of salaries or dividends, they must pay separate taxes on this money. The same profits are taxed twice.
While pass-through entities eliminate the double-taxation burden, the President has not included reductions in the top individual marginal tax rates. These are the rates that most small businesses pay. According to the President’s plan, these would actually go up from 35 percent to 39.6 percent.
About small business finance expert Mike Periu
Mike Periu has experience in small business finance. He founded Proximo, LLC a company that offers consumer and small business training services focused on technology and money.
Mike Periu teaches individual empowerment through entrepreneurship and financial literacy. He has appeared 500+ times on television and radio. Visit the Reach and Media pages of his website to learn more about where he has appeared.
You can read more of Mike’s articles on his blog or at American Express OpenForum, Yahoo! Finanzas and the Huffington Post.
Mike has a degree in International Business and Finance which he received at Georgetown University in Washington, DC. He received a Fellowship from the Kauffman Foundation for the Labs for Enterprise Creation program in Kansas City.