A Breakdown of The American Families Plan Tax Compliance Agenda for Small Business Owners
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On May 20, 2021, the U.S. Treasury Department released a report outlining new tax compliance measures as part of the American Families Plan. The Biden administration hopes that these new proposed procedures will increase tax fairness in the United States. Here’s what you need to know.
What The Biden Administration Hopes to Accomplish
According to the Treasury Department’s official report, the tax gap is constantly growing, and it will continue to do so if unaddressed. These new proposed measures seek to fight the tax gap by fighting tax evasion. This new plan aims to help create the necessary resources for the IRS to monitor and enforce fairness in the tax system.
The Changes
Provide the IRS the resources it needs to address sophisticated tax evasion
This includes $80 billion in additional resources to rebuild the infrastructure that has declined by nearly 20% over the last decade (U.S. Treasury Report)
Provide the IRS with more complete information.
This consists of stricter cashflow reporting requirements for banks and other third-party organizations without causing the taxpayers any additional responsibilities. The most talked about point in this category is the new cryptocurrencies and crypto-assets regulation from the U.S. Department of Treasury. (For more information and the U.S. Department of Treasury’s cryptocurrency announcement, read our article.)
Update technology used by the IRS to identify tax evasion and serve customers
The IRS’s current technology dates back to the 1960s and is the oldest in the federal government. These updates would allow the IRS to identify errors quicker and better protect the tax system from security threats.
Regulating paid tax preparers and increasing penalties for those who commit or abet evasion
Many people use tax preparers to file their taxes. Frequently, these preparers are unregulated and lack enough training to provide proper assistance. These new regulations will ensure that all preparers meet the necessary requirements to minimize errors in filing.
Will They Affect Your Business & How
The plan covers a wide range of tax areas. Here are how some of the proposed changes that may affect you/your business.
If your business files taxes as a corporation
A proposed change would increase the corporate income tax rate to 28 percent. Additional charges may apply to you:
If you have foreign assets
The proposed change eliminates the current exemption on the first 10 percent return of foreign assets for companies subject to the Global Intangible Low Tax Income. This would increase the minimum Global Intangible Low Tax Income to 21 percent.
If you have financial statements of $2+ Billion Net Book Income
The proposed change includes a 15 percent minimum income tax on financial statements with more than $2 billion in net book income that would not be taxed otherwise.
If you’re an owner of a sole proprietorship, partnership, S-corporation, or LLC:
Currently, qualifying pass-through entities are eligible for a 20 percent tax deduction. The proposal includes eliminating the current tax deduction. This would be done via a phase-out approach starting in the next wave of legislation for those earning more than $400,000.
Provisions for Specific Industries
If you’re a financial institution
A proposed addition would create a financial risk fee for institutions with more than $50 billion in assets.
If you’re a pharmaceutical institution
The proposed changes include eliminating a tax deduction on direct-to-consumer prescription drug advertising and imposing a tax if an increase in a drug price exceeds inflation.
Questions?
Have questions about how these changes might affect your business’s specific tax situation? Our business tax experts are here to help. Contact us to set up a meeting.