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Driving entity formation: pro-LLC proposal in the spotlight

On Behalf of | May 10, 2017 | Business Formation & Planning |

When it comes to considerations relevant to entity formation for any business in New York or elsewhere nationally, taxation-related issues quickly come to the fore. How will a commercial enterprise be taxed and, importantly, how will business principals be treated individually concerning tax duties?

And what tax rate will apply?

That latter question has emerged as key in a debate that has recently emerged with some force in the American business realm.

A recent Bloomberg article spells out the material details relevant to a recent Trump administration proposal that is clearly intended to make limited liability companies more attractive entity selections for business owners and managers across the country.

What that proposal favors is this: an instantly notable slashing of the so-called “pass-through” standard relevant to LLCs down to a 15-percent levy.

One factor that fundamentally sets LLCs apart from corporations is that they do not exist as stand-alone taxable entities. Rather, taxable business-related income passes through to their individual owners.

Currently, the top tax rate on such income for any LLC principal is 39.6%. Obviously, a drop from that level down to 16% is appreciable, and a factor that could reasonably lead many American businesses to reclassify themselves as limited liability companies.

A representative comment from a diverse band of proposal adherents touts its perceived ability to better ensure “an equal playing field when it comes to our tax system.”

Administration officials believe that a materially slashed LLC tax rate would lead to business expansion and increased hires. Bloomberg notes that Trump’s plan “was applauded by many small-business groups.”

Notwithstanding its support, though, a plummeting rate is anything but an imminent certainty, with Bloomberg pointing further to the “many hurdles” the proposal will unquestionably face as its proponents now push for its formal enactment as law.

Businesses of every type and size, both in New York and nationally, daily confront hard questions and challenges relevant to their operations and future prospects, with entity formation and corresponding tax treatment being just one concern among many that they routinely face.

Challenges bring opportunities, though, and many business clients know from experience that their close working relationship with a proven business and commercial law firm routinely helps them to proactively identify and work through challenges en route to optimally securing success.