May 31, 2018
The new tax law’s provision on pass-through rules could provide substantial tax savings to political consultants this year, but only if they qualify. Attendees listened in on Thursday, May 31st to learn more about what the changes to the pass-through tax rules mean for their business in 2018, and what they can do about it now to help optimize their strategies.
Mary Baker’s Lessons:
- In terms of corporations, there used to be a graduated tax rate structure, topping out at 35%, but now there is a flat rate of 21%.
- In terms of individuals, there used to be seven different income tax brackets, with the highest being 39.6%, and now there are seven income brackets with the top rate of 37%.
- Before, pass-through entities had income flows to an individual and were taxed at the individual’s normally applicable rate. Now, there is a lower, effective tax rate for certain pass-through businesses due to a 20% deduction on some income.”
- A political consulting business (and any service business) qualifies for the 20% tax deduction if total income is less than $157,500 or $315,000 threshold. There is no deduction if income is greater than $207,500 or $415,000.
- The pass-through tax deduction is a temporary deduction, it expires after 2025. It applies to any taxpayer other than a C corporation and it is deducted after your adjusted gross income.
About Mary: Mary Burke Baker is a government affairs counselor in K&L Gates’ Washington, D.C. office. Mary focuses on federal tax matters affecting businesses, including domestic and multinational corporations, all types of pass-through entities, and individuals. Her practice covers tax policy, tax reform, regulatory and other guidance, tax administration, and technical tax issues, with particular emphasis on corporate and pass-through issues, accounting methods, information reporting, Reports of Foreign Bank and Financial Accounts (FBAR) compliance, Opportunity Zones (OZs), and emerging cryptocurrency issues.
Steve Roberts’ Lessons:
- There are some high level business considerations to take when you are choosing your business entity type for taxation and liability purposes. If this is not done carefully, then you can end up having all of your personal assets on the line for your company.
- Entities are creatures of state-specific statutes, not the federal level, so some types of entities are not legal in certain states.
- It’s important to have your own lawyer to discuss important questions and decisions when setting up your company.
- Sole proprietorship is the simplest to establish, but is not recommended as the person is then personally liable for the company.
About Steve: Steve Roberts is Of Counsel at the law firm of Holtzman Vogel Josefiak Torchinsky, focusing his practice on lobbying compliance, campaign finance, and political committees. In 2015, Legal Bisnow named Steve one of Washington’s “Trending 40 Lawyers Under 40.”
A huge thank you to our speakers for sharing their expertise with the AAPC membership!