The Tax Foundation released a paper outlining the state of American pass-through businesses – S corps, partnerships, and sole props – and how the tax code currently treats those companies. While not banking specific there were still some key findings oon pass-through entities:
Pass-through business income is taxed on the business owners’ tax returns through the individual income tax code.
Pass-through business income faces marginal tax rates that exceed 50 percent in some U.S. states.
Pass-through businesses face only one layer of tax on their profits compared to the double taxation faced by C corporations.
The number of pass-through businesses has nearly tripled since 1980, while the number of traditional C corporations has declined.
Pass-through businesses earn more net business income than C corporations.
Pass-through businesses employed more than 50 percent of the private sector work force and accounted for 37 percent of total private sector payroll in 2011.
Although pass-through businesses are smaller than C corporations on average, they are not all small businesses. Many people work for large pass-through companies.
The majority of pass-through business income is taxed at top individual tax rates.
Tax reform aimed at improving the competitiveness of U.S. businesses needs to address the individual income tax code due to the economic importance of pass-through businesses.