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Thoughts on Tax Reform

Source: PIASC's Weekly Update, March 12, 2018

The major change in the 2018 tax reform bill is the reduction of the corporate rate from 35% to 21% together with 100% expensing of capital acquisitions.

Since almost all printers are corporations who choose to be taxed under Sub-Chapter S, meaning they attribute all of their income directly to their shareholders, these changes may justify changing the filing status of the corporation to one in which the corporation pays tax itself.

This takes advantage of the new, lower rates, but still leaves the problem of double taxation of dividends (non-deductible to the corporation but taxable to the shareholder). Generally, the solution for this is to increase the salary and bonus compensation of the shareholders.

Consideration should also be given to improving their fringe benefits. This might include differentially higher health insurance benefits. It might also include increased 401(k) contributions. These, of course, are limited by the contribution levels chosen by the non-executive employees. This difficulty can be eliminated by the adoption of a “safe harbor” 401(k) plan design. 

This is a good time to consult your tax advisor to be sure that you’re taking maximum advantage of the new law.

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