The House tax reform bill to be considered this week has a headline top rate of 25 percent for S corporations and other pass-through businesses, but in many cases the real rate is significantly higher.  S corporation owners need to pay attention.

Here are some of key details:

• Professional Services: First, the 25 percent rate doesn’t apply to professional service businesses.  Specifically, the bill excludes businesses engaged in “the performance of services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, any trade or business where the principal asset of such …
  
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The class warfare debate over the tax reform “Framework” has shifted its focus to the pass through business provisions.  John Harwood has a typically one-sided piece on the CNBC website, which includes this paragraph:

“There is no strong policy justification for the special pass-through rate in the GOP’s plan,” said Kyle Pomerleau, an analyst at the conservative Tax Foundation.  Since pass-through earnings represent around one-third of all income for the top one percent of taxpayers, Pomerleau added, the provision tilts the plan’s benefits toward the wealthy while favoring one kind of business over others.

Kyle is wrong of course.  …

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Axios reported over the weekend that the tax plan to be rolled out by the “Big Six” Wednesday will call for a 35 percent top rate for individuals, 25 percent for pass through businesses, and 20 percent for corporations.

If true (that’s a big “if” these days with all the misinformation flying around), it’s great news.  It would mean both Congress and the Administration have committed to treating Main Street businesses fairly in tax reform.  That said, the devil is in the details here.  As S-Corp readers know, the challenge in establishing a separate rate for pass through businesses is …

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