In a Post-Election Search for Common Ground, Tax Reform Could Emerge

After Tuesday’s midterm elections, Republicans will control both houses of the 114th Congress and President Obama, obviously, remains at the head of the executive branch. (NAIFA will provide a more complete election analysis early next week.)

While this may be a recipe for continued gridlock in Washington on many issues, one area where the two sides may look to compromise is business tax reform. This has the potential to affect insurance and financial advisors, and their clients, in several ways.

According to an InvestmentNews article, if tax reform should result in lower rates for businesses, many broker and advisor firms set up as S corporations would not benefit. Profits from S corporations pass through to the proprietors’ personal income tax, which the article says are unlikely to be included in the reform.

Depending on the legislation, the article says, “a small advisory firm could wind up paying the top individual tax rate of 39.5%, while a wirehouse or large regional advisory firm could have its current 35% corporate rate cut to 25%."

Proposals drawn from the Camp tax-reform draft could also make their way into legislative proposals next year. Most concerning could be proposals to tax corporate-owned life insurance (COLI) or employer-provided health insurance, restrict tax-favored retirement savings or limit nonqualified deferred compensation.

As always, tax reform remains at the forefront of NAIFA’s advocacy efforts and we will be watching closely for any trends or developments in 2015. It will also be a focus of NAIFA’s Congressional Conference in May of 2015.


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