Accounting Firms May Be Left Out of Tax Reform

Chris Gaetano
Published Date:
Sep 14, 2017

Should Congress pass tax reform, CPA firms will be busy helping business clients take advantage of new benefits that they, themselves, will be excluded from. This is because Treasury Secretary Steve Mnuchin said that accounting firms, as well as other service providers, might not benefit from lower tax rates that Republicans want to enact for other businesses, according to the Wall Street Journal.

The plan involves lowering the tax on pass-through entities by creating a special rate that, according to the Journal, is equal to or higher than the corporate tax rate but lower than the tax rate that applies to wages. While this would apply to pass-through business income, there would be boundaries to keep it from being used by those whose income from service businesses closely resembles wages. The secretary specifically called out accountants when illustrating his point, saying that "if you’re an accountant firm and that’s clearly income, you’ll be taxed an income rate, you won’t be taxed a pass-through rate...If you’re a business that’s creating manufacturing jobs, you’re going to get the benefit of that rate because that’s going to be passed through to help create jobs and better wages.”

Under such a system, according to the Journal, partners in an accounting firm would pay the individual tax rate on both their salaries and partnership distributions. In contrast, partners in a manufacturing firm would pay the individual tax rate on their salaries and a special, lower rate on their profits. 

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