Subchapter S: Call to Action
The Senate’s proposed tax reform bill fails to Subchapter S community banks into closer tax parity with C corporations. As a constituent in a key battleground state, please urge your senators to address this issue.
The proposal would reduce the top rate on C corporations to 20 percent. For Subchapter S banks and other pass-through businesses, the top rate is reduced to 38.5 percent. The proposal also includes a deduction of up to 17.4 percent, which would bring the effective tax rate on Subchapter S banks to 32 percent—12 points higher than the rate for C corporations.
The Senate proposal also removes the state and local tax deduction for pass-through entities, but retains it for C corporations. For higher-tax states, this will increase the effective rate up to 37 percent. Additionally, passive investors will be subject to the Net Investment Income Tax of 3.8 percent, which would further increase the effective tax rate up to more than 40 percent for certain taxpayers.
Please contact your senators to tell them to increase the pass-through deduction to bring Subchapter S community banks, and all pass-through entities, into closer tax parity with C corporations. At a minimum, the Senate bill should restore the state and local tax deduction for pass-through businesses.
Thank you for your advocacy efforts!
Megan Olson, IOM
President & CEO
Independent Community Bankers of South Dakota