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- 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 criticized it as a boon to the 1%.
- Small Business Labs estimates the plan’s pass-through policy will primarily benefit top earners.
The finalized 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 criticized 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
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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
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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
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Small Business Labs predicted small business owners in the 35% or 39.6% tax bracket – meaning those who make over $416,700 a year – will see “a tax reduction on their business income.”
Small business owners earn an average annual salary of $68,897, according to PayScale.
Some freelancers and contract workers
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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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