What businesses and investors should know about the House GOP tax plan

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If you’re really inclined to read the 429-page bill, there’s a copy here.

Chances are, though, you are looking for a more concise summary of how it could affect businesses, homeowners and other taxpayers. For that, we can help guide you through some insightful coverage on key issues, especially for businesses.

Before moving on, this Washington Post analysis gives a good summary of America’s tax structure as it now stands.

Would the changes be better for corporations?

Probably, but not necessarily for all.

The bill would reduce the corporate tax rate to 20 percent from 35 percent, but many businesses already pay much less than that.

As The Washington Post pointed out, Congressional Budge Office research shows that a variety of deductions resulted in U.S. corporations paying an effective marginal tax rate of 18.6 percent in 2012 — a number that has been largely stable overall, although rates vary from industry to industry.

For example, the Post noted, Walmart paid a 29.5 percent rate, according to its most recent statement, while the utilities, gas and electric sector paid a 3.1 percent effective corporate tax rate.

The bill would, however, pursue offshore profits earned by the subsidiaries of American corporations, the New York Times explains. But there is a carrot and a stick: Companies that repatriate overseas cash would be charged only 12 percent, as opposed to 35 percent.

What about ‘pass-through’ businesses?

Most American businesses fall into a category known as “pass-through” entities: sole proprietorships, partnerships, limited liability companies and S-corporations. Such businesses don’t pay income taxes. Rather, their income passes to the owners, members or partners, who are required to pay tax on that money.

As a result, some pass-through business income is taxed at top individual tax rates —  as high as 40 percent or even 46.2 percent in some cases. At the same time, many small “pass-through” businesses pay much less than that.

Under the GOP tax bill, the rate would be limited to 25 percent, Bloomberg notes, with restrictions for professional services providers, such as lawyers and accountants. Other elements would look to prevent the wealthy from using the provision to reduce their tax liability, the New York Times noted. Here’s more on that from Bloomberg.

The National Federation of Independent Business has come out against the bill as it now stands, arguing that  that the pass-through provision actually would not help most small businesses.

Regarding your nest egg …

While much of the discussion has understandably focused on business and personal income tax ramifications, there’s another area of concern that affects individuals as well as the financial planning industry: 401(k) plans.

The good news: Despite earlier speculation that lawmakers were going to reduce the amount of pre-tax money 401(k) investors can put into their plans, the bill released this week did no such thing.

Instead, as USA Today explained, Americans 50 or younger will still be able to set aside as much as $18,500 of their salaries into 401(k) accounts before tax in 2018, while those over 50 will be able to deposit $24,500 in pre-tax dollars.

OK, but will this plan pass?

Whatever happens, the proposal now on the table is likely to change as Congress fights over it. What we have seen so far is the House bill, with the Senate expected to unveil its own version shortly.

Politico predicts the battle to come as the race begins to get legislation to the president by year’s end.