While President-elect Donald Trump has his own tax plan, the House GOP formulated an approach of its own.

The House GOP Tax Reform Blueprint positions itself as a growth-friendly plan, one that encourages business investment and simplifies filing.

If the Blueprint were to come into effect, what would that mean for your business? What is the House GOP proposing?

The GOP's tax reform proposals

Under the current system, many small and closely-held businesses operate as partnerships and S corporations. The Blueprint noted that such organizations are taxed under the individual rate structure. In other words, they file as people instead of businesses. The GOP speculated that this system puts partnerships, S corporations and sole proprietorships at a competitive disadvantage.

Under the Blueprint, sole proprietorships and other pass-through entities will no longer be subjected to the individual tax rate. The maximum rate a small business would have to pay on income would be 25 percent. According to the House GOP, this rate represents "the lowest top tax rate on the income of [pass-through entities] since before World War II."

In addition, the compensation small-business owners earn through their operations will be deductible. However, that income earned will be subject to tax at the progressive rate, which consists of three brackets: (1) 12 percent, (2) 25 percent and (3) 33 percent.

What about corporations? In contrast to Trump's plan, the corporate tax rate would stay flat at 20 percent under the Blueprint's provisions. If implemented, this tax cut would be the largest in U.S. history. Corporations would also no longer have to pay the alternative minimum tax, which requires enterprises to add back deductions and credits reported on the income tax return to calculate the alternative minimum tax, according to the Internal Revenue Service. 

Elimination of the estate tax

The Blueprint also noted its intentions to get rid of the estate tax and generation-skipping transfer tax. So, if the owner of a sole proprietorship dies and leaves his or her business to his or her children, the latter won't have to pay taxes to obtain ownership. 

In theory, eliminating these taxes would simplify the estate transfer process, thereby minimizing operational disruption. Roll back of the Death Tax, which can double the amount of taxes small businesses and farms have to pay, would ease the financial burden of staying above water.

How will the tax plan effect the economy? 

The Tax Foundation conducted an analysis of the Blueprint, noting that under the proposed tax plan, the cost of capital investment will be fully deductible. However, it will also eliminate all other business credits except for the ones that apply to research and development. 

Overall, how will the House GOP's new tax plan impact the economy? Over the long term, the Tax Foundation predicted the Blueprint would increase GDP by 9.1 percent and create 1.6 million jobs. In addition, capital investment would rise 28.3 percent and the wage rate would increase 7.7 percent. 

Whether the Blueprint comes into effect is anybody's guess. If it does, however, small businesses may spend less time filing for taxes.

Do you have any questions? Would you like to discuss the matter further? If so, please contact me, James McDonough, at 201-806-3364.