Significant tax changes could be on the horizon in the United States after Republicans in the Senate narrowly approved a bill that would slash the corporate tax rate and provide temporary tax-rate cuts for most Americans.
The bill, which passed with a 51-49 vote on Saturday
(December 02), is likely to boost profits for multiple industries and was described by Vice President Mike Pence as a “middle-class miracle”.
But what does it mean for insurance brokerages or agencies?
caught up with Wyatt Stewart, senior director of federal government affairs at the Independent Insurance Agents & Brokers of America, Inc. (Big “I”), for the lowdown.
“Both the House Bill and the Senate Bill would significantly lower the C-Corps tax rates for agencies. About a third of our members are C-Corps, so their tax rate will be somewhere between 20% [Senate Bill] and 25% [House Bill]. That would certainly be an improvement for companies that qualify as C-Corps,” Stewart explained.
“The remaining two thirds of our members are so-called pass-through businesses, who pay their business taxes through their owners' individual tax returns. On that side of things, the impacts of these Bills are a bit more of a mixed bag
. It depends on the individual, what their income level is, whether or not they take deductions and what kind of deductions they take etcetera.”
C-Corporation companies in the US are taxed separately from their owners. The top tax rate they could pay right now is 35% but under the new Senate Bill, the maximum rate would drop substantially to 20%.
The Senate Bill offers a 23% income tax deduction to pass-through businesses earning $250,000 and under at an individual level or $500,000 and under if tax returns are filed jointly. Small businesses that make more than that will see less tax relief.
“If a final bill gets made into law, that won’t be done until 2018 and it won’t affect companies until they pay their taxes in April 2019,” Stewart said. “One thing smaller brokerages or agencies might want to think about and discuss is whether or not they want to convert to C-Corps to take advantage of the 20% corporate tax rate. That’s an issue that could potentially arise next year for some of the larger insurance brokerages and agencies.”
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