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How Would Law Firms Be Affected by Trump's Tax Plan?

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By William Vogeler, Esq. on May 02, 2017 11:58 AM

President Trump's proposed tax plan -- touted as 'the biggest individual and business tax cut in American history' -- would be a big break for lawyers, too.

Compared to setbacks for the president's travel bans and orders against sanctuary cities, the proposed plan is already a public relations success. Individuals would get to double standard deductions and avoid certain taxes, while corporations and partnerships would pay only 15 percent.

Of course, that depends on whether the plan gets through Congress. Observers don't think so, but there are a lot of lawyers in Congress ...

Tax Benefits

For most attorneys -- those who practice alone or in partnerships -- the tax plan would cut taxes. That's because the plan would cut the rate to 15 percent of pass-through income for partnerships and other small businesses. Combined with the additional deductions for individuals, it is an overall win.

Law firms practicing as corporations would get the same tax rate -- 15 percent -- but that is a win-win because the current corporate rate is 35 percent. It is the centerpiece of the Trump plan, and the most controversial because it would benefit the wealthiest.

That includes Trump. The Washington Post reports, based on the plan and Trump's last known tax returns, his empire would save tens of millions of dollars in one year.

"We will make sure that there are rules in place so that wealthy people can't create pass-throughs and use that as a mechanism to avoid paying the tax rate that they should" pay on personal income, Treasury Secretary Steven Mnuchin said.

Business Boon

According to the Atlantic, economists think the tax plan could lead to "a tax-sheltering bonanza."

Currently, households making $500,000 or more use pass-through entities. The magazine says that lawyers and other professionals would "rush to set up companies" for the same benefit under the proposed tax plan.

"Under Trump, that number would probably rise, as more high-income professionals sought to classify their individual earnings as 'business income,'" the report says.

And who would set up those companies? Exactly.

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