Quick look at the business equivalency rate
1
Why is pass-through tax treatment so important? . “Grant Thornton” refers to Grant Thornton LLP, the U.S. member firm of Grant Thornton International Ltd (GTIL). GTIL and its member firms are not a worldwide partnership. All member firms are individual legal entities separate from GTIL. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate, one another and are not liable for one another’s acts or omissions. Please visit grantthornton.com for details. © 2015 Grant Thornton LLP | All rights reserved | U.S. member firm of Grant Thornton International Ltd Business equivalency rate Equal rates for all businesses To learn more visit grantthornton.com/BEtaxrate Pass-throughs represent the fastest-growing and most important segment of the economy Current tax rates put pass-throughs at a competitive disadvantage and hinder reinvestment A business equivalency rate would level the playing field and encourage reinvestment. It should be business tax reform, not just corporate tax reform. Taxing pass-throughs as C corporations would be economically disruptive to them, negatively affecting their capitalization, operations, planning, retirement plans and compensation. Data source: IRS Statistics of Income, 2012. See www.irs.gov/uac/tax-stats-2 for details. & +> +D P +4 +D 82% of all U.S. business entities 39% of U.S. business receipts 35% 25% 39.6% 39.6% C corporation tax rate Pass-through, top individual tax rate C corporation tax rate Pass-through, top individual tax rate Current tax rates Compelling economic and business reasons for pass-through tax treatment Some of the most important industries rely on pass-through treatment Potential tax rate reform If Congress lowers the corporate rate but leaves the individual rate unchanged, the disadvantage pass-throughs face could increase to 14.6%. 14.6% 4.6% : +* +D 53% of net business income There’s more to our economy than C corporations Hospitality 64% Administration 60% Agriculture 69% 75% Construction Education 53% Health care 61% Professional services 62% Real estate 67% Entertainment 76% Reflects a percentage of business receipts. Source: IRS Statistics of Income, 2012. Fairer for professionals who work in the business Pass-through business professionals typically need to distribute their earnings more than do investors in C corporations. Easier governing framework A partnership of individuals is the most basic business structure, with shared operations and profits. Nurture startups Alternative structures encourage entrepreneurship and innovation. Facilitate succession Single level of taxation allows privately held businesses to continue when original owners exit. No distortion in favor of debt financing Unlike C corporations, no distortion of investment incentives in favor of debt financing. More efficient use of capital No “lock-in” effect on earnings; owners are taxed on income — distributed or not.
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Transcript of Quick look at the business equivalency rate
Why is pass-through tax treatment so important?
.
“Grant Thornton” refers to Grant Thornton LLP, the U.S. member firm of Grant Thornton International Ltd (GTIL). GTIL and its member firms are not a worldwide partnership. All member firms are individual legal entities separate from GTIL. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate, one another and are not liable for one another’s acts or omissions. Please visit grantthornton.com for details.
© 2015 Grant Thornton LLP | All rights reserved | U.S. member firm of Grant Thornton International Ltd
Business equivalency rateEqual rates for all businessesTo learn more visit grantthornton.com/BEtaxrate
Pass-throughs represent the fastest-growing and most important segment of the economy
Current tax rates put pass-throughs at a competitive disadvantage and hinder reinvestment
A business equivalency rate would level the playing field and encourage reinvestment. It should be business tax reform, not just corporate tax reform.
Taxing pass-throughs as C corporations would be economically disruptive to them, negatively affecting their capitalization, operations, planning, retirement plans and compensation.
Data source: IRS Statistics of Income, 2012. See www.irs.gov/uac/tax-stats-2 for details.
38+62+D 80+20+D 82%of all U.S. business entities
39%of U.S. business receipts
35%
25%
39.6%
39.6%
C corporation tax rate
Pass-through, top individual tax rate
C corporation tax rate
Pass-through, top individual tax rate
Current tax rates
Compelling economic and business reasons for pass-through tax treatment
Some of the most important industries rely on pass-through treatment
Potential tax rate reformIf Congress lowers the corporate rate but leaves the individual rate unchanged, the disadvantage pass-throughs face could increase to 14.6%.
14.6%
4.6%
58+42+D 53%of net business income
There’s more to our economy than C corporations
Hospitality 64%
Administration 60%
Agriculture 69%
75%Construction
Education 53%
Health care 61%
Professional services 62%
Real estate 67%
Entertainment 76%
Reflects a percentage of business receipts. Source: IRS Statistics of Income, 2012.
Fairer for professionals who work in the business Pass-through business professionals typically need to distribute their earnings more than do investors in C corporations.
Easier governing framework A partnership of individuals is the most basic business structure, with shared operations and profits.
Nurture startups Alternative structures encourage entrepreneurship and innovation.
Facilitate succession Single level of taxation allows privately held businesses to continue when original owners exit.
No distortion in favor of debt financing Unlike C corporations, no distortion of investment incentives in favor of debt financing.
More efficient use of capital No “lock-in” effect on earnings; owners are taxed on income — distributed or not.
