OTHER FEATURES
If businesses are not able to deduct interest
S corporation shareholders pay taxes on
expense, they may search for alternative
their share of S corporation income at
financing, such as equity investments,
individual ordinary income tax rates,
rather than borrowing to make large
resulting in some bank shareholders paying
purchases.
at rates of up to 39.6 percent.
Immediate
expensing
of
capital
On the surface, this proposal sounds like
investments could increase lending
great news for wealthier shareholders
The framework allows businesses to
investing in S corporation banks, but it
immediately expense the cost of new
isn't clear if the 25 percent rate will apply
investments in depreciable assets, other
to S corporations of all sizes, or if it will
than buildings and similar structures,
be limited to businesses below a certain
for a five-year period beginning in 2017.
size threshold, which could exclude
This effectively allows 100 percent bonus
certain institutions. In addition, there are
depreciation on these investments. The
provisions in the framework that indicate
bonus depreciation rate has fluctuated
Congress may adopt measures to prevent
wildly over the last 15 years, from zero
the re-characterization of personal income
percent up to 100 percent. While it is
(such as wages) into business income to
seen as an incentive to spur equipment
prevent wealthy individuals from avoiding
purchases, many believe this type of
the top personal tax rate.
incentive only speeds up the purchase of
Furthermore, the proposed repeal of
assets businesses would have purchased
the estate tax, which will also likely be
anyway.
temporary, could leave some shareholders
This provision, if enacted, could increase
struggling to plan how they will pass
some
commercial,
industrial,
and
on their shares to the next generation.
agribusiness production lending. However,
Speculation also remains as to how the
many small to mid-size businesses will
gift tax will be structured if the estate tax
likely not be affected, as they are already
is repealed.
able to take up to $500,000 in annual
How we can help
Section 179 deductions on equipment
While it is still unknown how these tax
purchases, which amply covers their needs
reform proposals will play out, it is clear
in many cases.
that the Republican Party is committed to
S corporation shareholders face
working towards major changes to the tax
uncertainty
code. We anticipate that these topics will
As
previously
addressed,
the
tax
be hotly debated in the fall of 2017 and into
reform plans may initially challenge
2018. In the meantime, your management
C corporation community banks because
team should be ready to act when the
of the potential impact on deferred tax
time comes. Leaders of community banks
assets and capital. But over the long run,
should consider preemptively meeting
it is clear that most C corporation banks
with their tax advisors to carefully consider
would appreciate lower corporate tax rates,
how these changes may impact your bank's
even if those rates are temporary.
future plans.
For S corporations, there is more
The information contained herein is general
uncertainty in these new proposals. The
in nature and is not intended, and should
framework limits the maximum tax rate
not be construed, as legal, accounting,
applied to the business income of small
investment, or tax advice or opinion
and family-owned businesses, including S
provided
by
CliftonLarsonAllen
LLP
corporations, to 25 percent. This is much
(CliftonLarsonAllen) to the reader. For more
different than the current system where
information, visit CLAconnect.com.
Amanda Garnett
Principal
CliftonLarsonAllen
amanda.garnett@CLAconnect.com
The Champion for Minnesota Bankers
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