Bring Small Businesses Back Tax Reform Act

To amend the Internal Revenue Code of 1986 to provide a lower rate of tax on a portion of pass-through business income, and for other purposes. 1. Short title This Act may be cited as the Bring Small Businesses Back Tax Reform Act 2. Special individual rates for qualified small business income (a) In general Section 1 of such Code is amended by adding at the end the following: (j) Maximum rate on qualified small business income (1) In general If a taxpayer has qualified business income for any taxable year, the tax imposed by this section for such taxable year shall not exceed the sum of— (A) a tax computed at the rates and in the same manner as if this subsection had not been enacted on taxable income reduced by qualified business income, (B) 10 percent of so much of the qualified business income of the taxpayer as does not exceed $150,000, plus (C) 20 percent of so much of the qualified business income of the taxpayer as exceeds the amount on which tax is determined under subparagraph (B). (2) Qualified business income (A) In general The term qualified business income (i) Gross earnings derived by an individual from any active trade or business carried on by such individual, less the deductions allowed by the subtitle which are attributable to such trade or business. (ii) The taxpayer’s distributive or pro rata share qualified pass-through income. Such term shall not include any amounts, or any distributive or pro rata share, attributable to capital gains, interest, dividends, and royalties. (B) Qualified pass-through income The term qualified pass-through income (3) Special rules (A) Material participation Paragraph (1) shall not apply with respect to any income attributable to a trade or business in which the taxpayer does not materially participate. (B) Coordination with capital gains This subsection shall be applied before the application of subsection (h). . (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2016. 3. Repeal of limitation on election to expense certain depreciable asset in case of non-C Corp taxpayers (a) In general Paragraphs (1) and (2) of section 179(b) The In the case of a corporation (or any partnership with a corporation as a partner), the (b) Effective date The amendment made by this section shall apply to taxable years beginning after December 31, 2016. 4. Expanded availability of cash accounting rules and exception to inventory rules for certain small businesses (a) Cash accounting permitted (1) In general Section 446 (g) Certain small business taxpayers permitted To use cash accounting method without limitation (1) In general With respect to an eligible taxpayer who uses the cash receipts and disbursements method for any taxable year, such method shall be deemed to clearly reflect income and the taxpayer shall not be required to use an accrual method. (2) Eligible taxpayer For purposes of this subsection, a taxpayer is an eligible taxpayer with respect to any taxable year if— (A) for all prior taxable years beginning after December 31, 2016, the taxpayer (or any predecessor) met the gross receipts test of section 448(c), and (B) the taxpayer is not subject to section 447 or 448. . (2) Expansion of gross receipts test (A) In general Paragraph (3) of section 448(b) of such Code is amended by striking $5,000,000 $25,000,000 (B) Conforming amendments Section 448(c) of such Code is amended by striking $5,000,000 $25,000,000 (3) Farming (A) In general Section 447(d)(1) of such Code is amended by striking $1,000,000 $25,000,000 (B) Conforming amendment Section 447(d)(2) of such Code is amended— (i) by striking ; and (ii) by striking shall be applied— (i) by substituting shall be applied by substituting (b) Inventory rules (1) In general Section 471 (c) Small business taxpayers not required To use inventories (1) In general An eligible taxpayer (as defined in section 446(g)(2)) shall not be required to use inventories under this section for a taxable year. (2) Treatment of taxpayers not using inventories If an eligible taxpayer (as so defined) does not use inventories with respect to any property for a taxable year, any cost which (but for paragraph (1)) would have been included by the taxpayer in inventory costs shall be treated as an expense which is deductible for the taxable year in which the property is purchased. . (2) Conforming amendment Section 263A(c) of such Code is amended by adding at the end the following new paragraph: (7) Exclusion from inventory rules This section shall not apply to property with respect to which a taxpayer does not use inventories pursuant to section 471(c). . (c) Effective date and special rules (1) In general The amendments made by this section shall apply to taxable years beginning after December 31, 2016. (2) Change in method of accounting In the case of any taxpayer changing the taxpayer’s method of accounting for any taxable year under the amendments made by this section— (A) such change shall be treated as initiated by the taxpayer; and (B) such change shall be treated as made with the consent of the Secretary of the Treasury.

Summary: Bring Small Businesses Back Tax Reform Act This bill amends the Internal Revenue Code to establish new maximum individual tax rates for qualified business income that does not exceed $1 million (i.e., small business income). The maximum rates are: (1) 10% of such income not exceeding $150,000, and (2) 20% for income that exceeds $150,000 and is not more than $1 million. The rates apply to up to $1 million of qualified business income that is: (1) gross earnings derived by an individual from any active trade or business carried on by the individual, excluding deductions attributable to the trade or business; and (2) the taxpayer's distributive or pro rata share of pass-through income from entities such as a partnership or S corporation. Qualified business income does not include capital gains, interest, dividends, or royalties. For taxpayers that are not a corporation or a partnership with a corporation as a partner, the bill repeals the annual limitation on the election to deduct certain depreciable business assets. The bill also permits certain small businesses whose average gross receipts do not exceed $25 million (currently, $5 million) to use the cash accounting method without limitations and exempts such businesses from inventory rules.