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Stradling

Publications & Interviews

January 2017

On January 12, The Daily Journal interviewed Stradling’s Shahzad Malik, chair of the firm’s tax practice, for an article about how a simplified tax code under the Trump administration might remove the need for complex accounting methods to reduce tax burdens. Malik explained that the current wisdom is to operate as a flow-through corporation, where money passes through the entity, avoiding corporate tax, and the shareholder pays a lower individual tax. "On the domestic corporate side, there are proposals to lower the corporate tax rate from both Speaker [Paul] Ryan and from Mr. Trump to around 15 percent," Malik said. "If the corporate tax is much lower than the individual, we may actually be urging people to operate through actual corporations, which is something a corporate tax lawyer hasn't said in the last 25 years. The shift would affect private equity firms, which operate as flow-through corporations and which model out anticipated investor returns on an after-tax basis. Malik said the question for investors under the new tax rates would be, "'Would you rather pay a higher 30 percent tax today, or would you rather pay the lower 15 percent tax today and then have to pay some additional higher dividend tax in the future? It all depends on when you're going to get your dividend," Malik added. "There is also a world in which law firms may decide to operate as professional corporations again, which is something not a lot do anymore, and it could affect equity partners and how we structure our firms." Malik also predicted that that nonprofit organizations might see their end-of-the-year influx of donations dry up in years to come if Trump makes good on his proposal to cap itemized deductions for individuals at $200,000. Current rules allow deductions of up to 50 percent of adjusted gross income, he said, with the ability to carry over the unused portion of that deduction for five years. Malik also suggested that “some kind of repatriation holiday is very likely in the near future, like a one-time 10 percent rate. If our corporate rate was lowered to 15 or 20 percent, even if it's still higher than other jurisdictions, the disparity is decreased and people are less likely to want to do a lot of expensive planning to shift over to another country, because it might not be worth the effort."