Making the Most of Corporate Tax Reform

shutterstock_612496793

 

Although nothing major has happened yet, rest assured that corporate tax reform is on the way. The Trump administration has made big promises and at some point they are coming. So far, the president has proposed reducing the corporate tax rate from 35 percent to 15 percent, while republican leaders in Congress have proposed a slightly more modest reduction to 20 percent.

Either way, the cut would represent a significant reduction form the current rate of 35 percent and corporations would see a huge boost. For example, if the effective tax rate dropped to 8.4 percent, then S&P companies would see the amount of pretax income they keep jump to about 85 percent from the current amount of about 76 percent.

The president has also proposed a repatriation rate of only 10 percent. In other words all the corporate income that companies are currently holding overseas in order to avoid the 35 percent U.S. corporate tax rate would only be charged a 10 percent rate if it were brought home to the U.S. There could also be a removal of the interest-deductibility, which could actually hurt earnings, but the tax breaks would far outweigh the losses.

Therefore, if you add it all up you get a lower corporate tax rate that would boost earnings by about 11 percent combined with a repatriation rate that would boost earnings another 2 percent. Removing the interest-deductibility would lower earnings by 2 percent, therefore leaving a net boost of 11 percent to S&P 500 earnings.

Posted in
Try These Five Tips For Tax Savings in 2014

Try These Five Tips For Tax Savings in 2014

Everyone loves to save on their taxes, especially since it seems like the government never runs out of ways to add to American’s tax bill. So let’s discuss some helpful tips to reduce your tax bill. Although it might be too late to implement these ideas for last year’s return – unless you file an…

As Property Values Soar In California, So Do the Tax Bills

As Property Values Soar In California, So Do the Tax Bills

As Property Values Soar In California, So Do the Tax Bills When it comes to taxes, sometimes it seems like if it’s not one thing, then it’s another. During the recession, when the housing market was taking a hit due to dropping property values, county tax assessors across the state actually dropped property tax bills…

Five Tax Items to Be Ready For This Year

Five Tax Items to Be Ready For This Year

Five Tax Items to Be Ready For This Year Although the most recent tax season is over one can never truly put his or her tax-planning hat completely away for the year. With tax laws and regulations always in flux, you have to make sure that you’re prepared for the upcoming tax season. It will…

Five Tips for Planning Your Taxes for Next year

Five Tips for Planning Your Taxes for Next year

Summer is almost here and that means people are getting ready to enjoy outdoor activities like BBQs & swimming and hiking & fishing. It’s also a great time to start thinking about your taxes for next year. What? It can’t really be time to do that, can it? Well, when it comes to tax planning,…