Trump's plan changes the pass-through nature of an LLC?

Question

It just sunk in for me. Can someone with closer ties to taxes verify this? I saw this which states:

"Trump has proposed cutting the corporate tax rate from 35% to 15%. Significantly, this proposal would apply not only to large corporations. It would also apply to small pass-through entities
like limited liability companies and subchapter S corporations. These are the "mom and pop" businesses that power much of the employment in our country."

This would be huge. If the 15% rate apply to capital gains and depreciation recapture, I would bet a lot of property sellers would be rethinking doing a 1031 exchange and just paying the 15%. Is that the idea? Pay smaller amounts now vs. kicking the tax can down the road?

Bill Gulley · Answer

Crazy politics, don't pay any attention to the man behind the curtain! It's a good thing that we have 3 branches of government, "proposed" is not reality! :)

Brandon Hall · Answer

@Chris Martin we have advised our clients to move income streams (real estate, business, etc) into LLCs if they have not done so already. Keep it simple and use a SMLLC and there won't be large tax prep costs, just the annual state filing fee (for NC at least). Worst case, you spend $150 per year and gain asset protection. Best case, you gain asset protection and a tax advantage.We'll know more toward the end of summer.

Lance Lvovsky · Answer

Currently, pass through income is taxed at the individual's tax rates and retains its character from the pass through entity (example: 1231 gain will be taxed as a 1231 gain at individual level). Trump's proposal is make pass through income taxed at one flat rate, 15%. It still remains to be seen whether this will actually happen, and more importantly, how this would be implemented. Would income items still retain their character from the entity level? That remains to be seen.

Chris Martin · Answer

We've done 1031 exchanges on some and member distributions on some. We are guaranteed to not be 100% efficient, tax wise;) I don't know what ITC programs will remain, but our members may be exploring WVA and PA for coal projects;)

Christopher K. · Answer

Definitely going to be interesting to see how this all unfolds (or doesn't) .. I've been trying to follow this pretty closely since Trump first announced it. While at the same time holding back any elation or parties, as I think we all know the nature of 'announcements' like this. Which is virtually all it has been to date, as far as I can tell.I don't care to wager the likelihood of his proposal actually seeing the light of day, as I don't believe our legislative branch has even begun to take this on. So, yeah. Who knows.Saying I'm cautiously optimistic is even probably overstating it a bit.

Jay Hinrichs · Answer

chris that would stimulate a lot of sales of capital assets... and probably create more tax revenue .. it would hurt 1031 folks... I for one would pay the tax so I never had to worry about rolling up constantly.and if you live in a state with no income tax double bonanza... but just remember when Mr. Forbes wanted to make a flat tax... that did not really make it LOL... OK off to do some fly fishing yall have a great day

Sean Cole · Answer

Wow, @Chris Martin that's a huge assumption! Takes guts for sure since there's not even a bill in Congress yet and his "plan" was a single-sided piece of paper.Remember that no president sets the tax rates we pay. They can propose whatever they want, but it's Congress that passes the bill to the President.

Brandon Hall · Answer

@Chris Martin be careful with assumptions. I'm not confident these measures will be passed, and if they do, they will likely be different than proposed.

Chris Martin · Answer

NC SOS annual report fees are $200. @Brandon Hall We have virtually everything in LLCs now, so the 15% taxed at the entity level would be welcomed by our members. So the next $1M we sell (sold $240K last week... about $700K +/- to go) will go to members as we assume the 15% tax change will go through. Our last 2017Q1 sale of $1.3M was 1031ed. Hedging strategy was accepted by our members (unanimous vote;) Checks to members start flowing this week!

Chris Martin · Answer

@Lance Lvovsky thanks for the reply. What I don't get is how are people supposed to plan? How are you advising your clients regarding tax rates and how they relate to things like 1031 exchanges? Seems like historically tax related changes passed by congress will apply in the tax year passed. Am I the only one who looks at this and thinks 'I could be paying 15% ... or 35%. But there is no way to know through the first 1/3 of the year.' Seem like hedging one's bet is an option. Taking gains for some sales, and 1031 exchanging others. I don't (yet) see a good answer for property sellers today.