How Will President Biden’s Tax Plan Impact Your Business?

In my last eNewsletter, I specifically addressed how President Biden’s proposed tax plan would impact your personal finances.

But the Biden administration is also looking to make significant revisions to the business tax code, too.

And if you’re a business owner, you’re probably wondering how Biden’s plans will impact your business?

At this point, Biden’s proposal is still just that, a proposal. But here’s a brief overview of the corporate tax revisions Biden hopes to usher in…

A BIG Jump In Corporate Tax Rates

The key provision of President Biden’s tax plan is increasing the federal corporate tax rate to 28%. And this, combined with average state corporate tax rates, would bring the annual corporate tax rate to an estimated 34.2%

To clarify, this is the top rate and applies to corporations with the highest annual earnings.

Increased Taxes On Capital Gains + Dividents, Too

Biden’s plan also includes increasing the marginal tax rate on capital gains and dividends to 43.4%.

The Highest (Combined) Corporate Tax Rate In The Industrialized World?

Some financial analysts have pointed out that if you combined Biden’s increased corporate tax rate and the increased taxes on capital gains and dividends, it brings the effective corporate tax rate to 65.1%.

This marks a nearly 20-point increase over the current 47.3% corporate tax rate. And, if Biden has his way, the US will have the highest corporate tax rate of any industrialized nation.

How Does This Impact Small Businesses?

Of course, the vast majority of US businesses qualify as small businesses. And these enterprises’ earnings are nowhere near approaching the top rate.

Additionally, most small businesses are structured as pass-through entities. So, business income qualifies as personal income for tax purposes.

But that said, roughly a quarter of small businesses are registered C-corporations. And while these operations may not be at the top rate, they’re still likely to see increases. Especially if their business grows.

An Unintended Consequence of Rising Corporate Taxes

Businesses, much like individual taxpayers, use deductions and other tax shelters to decrease visible income.

These measures, however, can serve to weaken a business’s financial position, at least as it appears “on paper.” And this, in turn, can make it more difficult for a small business to secure business financing

Have Questions About Your Small Business Taxes?

Again, President Biden’s revisions are still in the proposal stage. But if his plan passes into law, it could impact your business. And if you have questions, I recommend getting in touch for a FREE consultation!