ABA Banking Journal
No Result
View All Result
  • Topics
    • Ag Banking
    • Commercial Lending
    • Community Banking
    • Compliance and Risk
    • Cybersecurity
    • Economy
    • Human Resources
    • Insurance
    • Legal
    • Mortgage
    • Mutual Funds
    • Payments
    • Policy
    • Retail and Marketing
    • Tax and Accounting
    • Technology
    • Wealth Management
  • Newsbytes
  • Podcasts
  • Magazine
    • Subscribe
    • Advertise
    • Magazine Archive
    • Newsletter Archive
    • Podcast Archive
    • Sponsored Content Archive
SUBSCRIBE
ABA Banking Journal
  • Topics
    • Ag Banking
    • Commercial Lending
    • Community Banking
    • Compliance and Risk
    • Cybersecurity
    • Economy
    • Human Resources
    • Insurance
    • Legal
    • Mortgage
    • Mutual Funds
    • Payments
    • Policy
    • Retail and Marketing
    • Tax and Accounting
    • Technology
    • Wealth Management
  • Newsbytes
  • Podcasts
  • Magazine
    • Subscribe
    • Advertise
    • Magazine Archive
    • Newsletter Archive
    • Podcast Archive
    • Sponsored Content Archive
No Result
View All Result
No Result
View All Result
ADVERTISEMENT
Home Community Banking

After Tax Reform, Banks Are Doing the Math on S-Corps

April 24, 2018
Reading Time: 2 mins read

By Debra Cope

More than 600 participants joined a recent American Bankers Association webinar on how tax reform legislation affects Subchapter S corporations, underscoring that many banks are weighing tax strategy decisions.

Nearly 2,000 U.S. banks have elected Subchapter S tax treatment as a way of passing through tax liability directly to shareholders, avoiding a double tax hit on the bank and its shareholders. Banks that elect Subchapter S status generally strive to distribute enough cash to shareholders in the form of dividends to enable them to satisfy the tax liability.

Kevin Powers, a tax partner with Crowe Horwath in Hartford, Conn., walked participants through examples of how banks can evaluate all the variables that affect whether Subchapter S treatment makes sense for them as the 2017 tax reform law takes effect.

The tax reform bill reduced the maximum federal corporate income tax rate from 35 percent to 21 percent for tax years beginning after Dec. 31, 2017. It also reduced the maximum income tax rate on individuals from 39.6 percent to 37 percent for taxable years 2018 through 2025. Income tax rates on capital gains for non-corporate taxpayers were unchanged at 15 percent or 20 percent.

Significantly, Powers noted, the bill also created a 20 percent deduction for so-called “qualifying income” of businesses conducted through pass-through entities or as sole proprietorships. This has the potential in some cases to reduce the maximum effective federal income tax rate on such income from 37 percent to 29.6 percent, he noted.

ABA’s Curtis Dubay and John Kinsella have been working with policymakers and other trade associations to make sure the intent of Congress with respect to S-corporation banks comes through in the definition of “qualifying income.” Income qualifies for the deduction as long as the business is not engaged in a “specified service trade or business.” The specified services, trades and businesses are defined in the law; however, the Treasury Department is working now to issue interpretative regulations that further define which types of business lines will be excluded from the deduction.

The presenters said that the upshot of these and other tax changes — including limits on deduction of state and local income taxes and property taxes and the elimination of miscellaneous itemized deductions — is that banks may need to reassess whether being treated as a corporation or a pass-through is more advantageous.

William “Dub” Sutherland, a partner with the San Antonio law firm of Kennedy Sutherland, said key advantages of Subchapter S corporations remain in place, particularly the avoidance of double taxation. By applying the 20 percent deduction, taxpayers could see their effective income tax rates lowered. “And if you are an active investor, you have the benefit of avoiding a 3.8 percent tax on net investment income,” he added.

“S-corporations don’t have quite the same advantage over a C-corporation as we had before,” Sutherland said. “But if you are paying dividends and plan to continue to do so, it is tough to come up with a scenario where converting to a C-corporation makes sense.”

Patrick Kennedy, managing partner with Kennedy Sutherland, said the enactment of tax reform presents an opportunity for banks to “step back and analyze your individual situation.” For example, “if you are in a slow-growth mode, capital accumulation may not be a significant issue,” making S-corp status viable. But, “If you are in a high-growth mode, you may not want to have the pressure of paying dividends that you would in an S-corporation regime,” Kennedy said.

The bottom line, the presenters said, is to do the analysis and not rush the decision. “Really analyzing individual shareholder positions is very important,” Kennedy said.

ADVERTISEMENT
Tags: DirectorsSubchapter STax reform
ShareTweetPin

Author

Debra Cope

Debra Cope

Debra Cope is editor-in-chief of ABA Banking Journal Directors Briefing.

Related Posts

The future of careers in risk and compliance

The future of careers in risk and compliance

ABA Banking Journal Podcast
July 17, 2025

What does the future hold for bank risk and compliance professionals? Krysti Cunningham discusses the technological transformation in risk and compliance at community and midsize banks and applications for AI tools and LLMs in risk and compliance.

ABA faults banking regulators for confusing CRA rule rollout

Banking agencies propose to rescind Community Reinvestment Act rule

Community Banking
July 16, 2025

The Federal Reserve, FDIC and OCC issued a joint proposal to rescind the Community Reinvestment Act final rule adopted in 2023.

OCC sees need for regulatory reform in bank merger process

Bank acquisitions announced in three states

Community Banking
July 16, 2025

Huntington Bancshares, First Community and Civista Bancshares announce planned acquisitions in Texas, Georgia and Ohio.

FDIC withdraws proposed rules on brokered deposits, corporate governance, executive pay

FDIC board advances proposals on industrial banks, supervisory appeals, bank branches

Community Banking
July 15, 2025

The FDIC board voted to roll back Biden-era actions on industrial banks, supervisory appeals and CRA implementation. It also introduced a proposal to streamline the agency’s approval process for new bank branches.

ABA donates to Texas flood relief efforts, urges bankers to contribute

ABA donates to Texas flood relief efforts, urges bankers to contribute

Community Banking
July 10, 2025

ABA will donate $10,000 to Texas Bankers Foundation to assist with immediate disaster response and recovery following the recent catastrophic flooding in Central Texas.

Budget bill narrowly passes Senate, moves back to House

Breaking down the bank-related provisions in the big budget bill

ABA Banking Journal Podcast
July 10, 2025

Following the enactment of the One Big Beautiful Bill Act, hear from ABA experts on how key ABA-supported provisions on tax policy, rural real estate and health savings accounts in the budget reconciliation law will affect banks.

NEWSBYTES

ABA offers fixes for small-business lending data collection rule

July 18, 2025

ABA DataBank: Retail sales rebounded in June

July 18, 2025

CFPB to keep notification procedures for state enforcement of consumer law

July 18, 2025

SPONSORED CONTENT

Navigating Disruption in Ag Lending – Why Tariffs Are Just the Tip of the Iceberg

Navigating Disruption in Ag Lending – Why Tariffs Are Just the Tip of the Iceberg

July 1, 2025
AI Compliance and Regulation: What Financial Institutions Need to Know

Unlocking Deposit Growth: How Financial Institutions Can Activate Data for Precision Cross-Sell

June 1, 2025
Choosing the Right Account Opening Platform: 10 Key Considerations for Long-Term Success

Choosing the Right Account Opening Platform: 10 Key Considerations for Long-Term Success

April 25, 2025
Outsourcing: Getting to Go/No-Go

Outsourcing: Getting to Go/No-Go

April 5, 2025

PODCASTS

The future of careers in risk and compliance

July 17, 2025

Breaking down the bank-related provisions in the big budget bill

July 10, 2025

Podcast: Inside ABA’s new Treasury Check Verification System API

June 25, 2025
ADVERTISEMENT

American Bankers Association
1333 New Hampshire Ave NW
Washington, DC 20036
1-800-BANKERS (800-226-5377)
www.aba.com
About ABA
Privacy Policy
Contact ABA

ABA Banking Journal
About ABA Banking Journal
Media Kit
Advertising
Subscribe

© 2025 American Bankers Association. All rights reserved.

No Result
View All Result
  • Topics
    • Ag Banking
    • Commercial Lending
    • Community Banking
    • Compliance and Risk
    • Cybersecurity
    • Economy
    • Human Resources
    • Insurance
    • Legal
    • Mortgage
    • Mutual Funds
    • Payments
    • Policy
    • Retail and Marketing
    • Tax and Accounting
    • Technology
    • Wealth Management
  • Newsbytes
  • Podcasts
  • Magazine
    • Subscribe
    • Advertise
    • Magazine Archive
    • Newsletter Archive
    • Podcast Archive
    • Sponsored Content Archive

© 2025 American Bankers Association. All rights reserved.