The Tax Cuts and Jobs Act (TCJA) of 2017 Essay

Exclusively available on Available only on IvyPanda® Made by Human No AI

The 2017 tax reform ended up in the first significant changes in the field since the Tax Reform Act of 1986. In general, the Tax Cuts and Jobs Act (TCJA) of 2017 decreased the corporate income tax rate by 15% (from 35 to 21%). Analysts expected that this headline change would drive the conversion of flow-through entities and partnerships into C corporations (Klinzing, 2019). Nevertheless, the trend of three consecutive years shows that it has not occurred.

Although TCJA lowered the federal corporate tax rate for enterprises with a C Corporation structure, the distributions’ taxation (dividends) remain at the same level. For instance, noncorporate shareholders should pay 23.8% federal income tax on dividends. After adding the state’s income tax, the number grows to 39.8%, making C Corporations unattractive. The initial goal of reform was to increase profits of multinational corporations spurring capital investments. In practice, such businesses opted to buy back shares of their own stock seeking short-term profits.

On the contrary, a flow-through entity avoids double taxation as it itself is not subject to taxation. Nevertheless, its owners and investors should pay income tax that dropped by 2%. Noncorporate taxpayers that own proprietorships, partnerships, or S Corporations enjoy a 20% deduction resulting in 29.6% of the effective federal tax rate (Klinzing, 2019). The sufficient income tax of pass-through entities depends on employment taxes, self-employment, and the net investment income tax.

In general, there is no ideal entity consideration for businesses, as everything depends on their intention to make distributions or its absence. If the company wants to reinvest the lion’s heart of its income (after-tax proceeds), a C Corporation becomes a superior growth option. It is better because of usually higher income compared to pass-through structures. Contrary, if an enterprise wants to pay dividends, the flow-through entity would be a more efficient choice. For instance, manufacturing companies should convert into C Corporation entity as it needs continuous reinvestment in R&D, equipment, and structures to grow. Due to reform’s complexity, CPA firms witnessed the surge in clients and expanded their personnel to meet the demand.

Reference

Klinzing, M. (2019). . JD Supra. Web.

More related papers Related Essay Examples
Cite This paper
You're welcome to use this sample in your assignment. Be sure to cite it correctly

Reference

IvyPanda. (2022, September 22). The Tax Cuts and Jobs Act (TCJA) of 2017. https://ivypanda.com/essays/the-tax-cuts-and-jobs-act-tcja-of-2017/

Work Cited

"The Tax Cuts and Jobs Act (TCJA) of 2017." IvyPanda, 22 Sept. 2022, ivypanda.com/essays/the-tax-cuts-and-jobs-act-tcja-of-2017/.

References

IvyPanda. (2022) 'The Tax Cuts and Jobs Act (TCJA) of 2017'. 22 September.

References

IvyPanda. 2022. "The Tax Cuts and Jobs Act (TCJA) of 2017." September 22, 2022. https://ivypanda.com/essays/the-tax-cuts-and-jobs-act-tcja-of-2017/.

1. IvyPanda. "The Tax Cuts and Jobs Act (TCJA) of 2017." September 22, 2022. https://ivypanda.com/essays/the-tax-cuts-and-jobs-act-tcja-of-2017/.


Bibliography


IvyPanda. "The Tax Cuts and Jobs Act (TCJA) of 2017." September 22, 2022. https://ivypanda.com/essays/the-tax-cuts-and-jobs-act-tcja-of-2017/.

If, for any reason, you believe that this content should not be published on our website, please request its removal.
Updated:
This academic paper example has been carefully picked, checked and refined by our editorial team.
No AI was involved: only quilified experts contributed.
You are free to use it for the following purposes:
  • To find inspiration for your paper and overcome writer’s block
  • As a source of information (ensure proper referencing)
  • As a template for you assignment
Privacy Settings

IvyPanda uses cookies and similar technologies to enhance your experience, enabling functionalities such as:

  • Basic site functions
  • Ensuring secure, safe transactions
  • Secure account login
  • Remembering account, browser, and regional preferences
  • Remembering privacy and security settings
  • Analyzing site traffic and usage
  • Personalized search, content, and recommendations
  • Displaying relevant, targeted ads on and off IvyPanda

Please refer to IvyPanda's Cookies Policy and Privacy Policy for detailed information.

Required Cookies & Technologies
Always active

Certain technologies we use are essential for critical functions such as security and site integrity, account authentication, security and privacy preferences, internal site usage and maintenance data, and ensuring the site operates correctly for browsing and transactions.

Site Customization

Cookies and similar technologies are used to enhance your experience by:

  • Remembering general and regional preferences
  • Personalizing content, search, recommendations, and offers

Some functions, such as personalized recommendations, account preferences, or localization, may not work correctly without these technologies. For more details, please refer to IvyPanda's Cookies Policy.

Personalized Advertising

To enable personalized advertising (such as interest-based ads), we may share your data with our marketing and advertising partners using cookies and other technologies. These partners may have their own information collected about you. Turning off the personalized advertising setting won't stop you from seeing IvyPanda ads, but it may make the ads you see less relevant or more repetitive.

Personalized advertising may be considered a "sale" or "sharing" of the information under California and other state privacy laws, and you may have the right to opt out. Turning off personalized advertising allows you to exercise your right to opt out. Learn more in IvyPanda's Cookies Policy and Privacy Policy.

1 / 1