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While individual tax cuts from the 2017 Tax Cuts and Jobs Act are set to expire after 2025, 95% of business owners will not “automatically” experience a tax hike, because many businesses have no taxable income.
TCJA’s corporate tax cuts are permanent. However, most American businesses “pass through” their tax liability to their individual owners. In 2015, 95% of businesses, representing 63% of business income, were pass-through, according to EconoFact.
Pass-through business income would be taxed at a higher rate if TCJA’s individual tax cuts and 20% pass-through income deduction are allowed to expire.
In this scenario, pass-through businesses that turn a profit would see their taxes increase. But tax expert Matt Gardner points out that “many, many businesses each year don’t turn a profit” and therefore “have no taxable income to pass through.”
Less than two-thirds of small businesses were profitable in 2022, according to the Chamber of Commerce.
This Fact Brief is responsive to conversations such as this one.
Investopedia Explaining the Trump Tax Reform Plan
EconoFact The Other 95%: Taxes on Pass-Through Businesses
Investopedia How the TCJA Tax Law Affects Your Personal Finances
DocHub ITEP Matt Gardner Response
Chamber of Commerce Small Business Statistics