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Pass-Through Tax Cut Could Be Opportunity for FAs

November 8, 2017

The House bill cutting the pass-through tax to 25% could present plenty of opportunities for financial advisors to help their clients, according to InvestmentNews.

The tax, which applies to businesses such as S-corporations, sole proprietorships and partnerships, would be cut from 39.6% to 25% under the GOP’s proposal, the publication writes. But it’s not without caveats. Advisors, for example, as well as other service businesses such as accounting and law firms, would not qualify for the cut because it’s aimed at capital-intensive manufacturing companies, InvestmentNews writes.

Even so, Leon LaBrecque, managing partner and chief executive at LJPR Financial Advisors, questions whether he would be able to place the copyrights to the six ebooks he’s authored into a separate pass-through company, according to the publication.

Meanwhile, the cut has other restrictions, even on manufacturing firms. The 25% rate would only apply to 30% of the business, and the business owner’s individual tax rate would apply to the remaining 70% of the business, InvestmentNews writes. But lawmakers could be lobbied to extend the 25% tax rate to more than 30% of the business, LaBrecque tells the publication.

Other advisors are weighing opportunities for clients who aren’t strictly in manufacturing, InvestmentNews writes. For example, Anjali Jariwala, a financial planner at FIT Advisors, wonders if the rate would apply to doctors who buy a lot of medical equipment, according to the publication.

But questions remain about who would qualify for the 25% rate and how, InvestmentNews writes. For example, 100% of passive income such as that generated in master limited partnerships as investments would qualify for the 25% rate, Jeff Erickson, a principal at E&Y, tells the publication. But it’s unclear how the rate would apply to real estate investment trust income, he tells InvestmentNews.

“I’m not looking forward to January if this bill goes through as is,” Jariwala tells the publication. “It’s clear, but it’s not, because there is need for a lot of interpretation.”

By Alex Padalka
  • To read the InvestmentNews article cited in this story, click here.