Tax Uncertainties
If the Senate measure were included in the final bill, independent advisors could end up paying tens of thousands of dollars less in taxes annually than their employee counterparts, according to industry talking points that are being handed out on Capitol Hill to lawmakers and their staff.
Such a disparity could cause advisors who are employees to quit, or push to be reclassified as contractors, Iacovella said in the letter. While most of the Equity Dealers of America’s members classify their financial advisers as employees, some have relationships with contract brokers.
Some tax attorneys said that while the brokerage industry is right to be paying attention to the matter, like with much of the tax legislation, it’s still not yet clear what the effect will be.
“The extent to which someone might be able to take advantage of the pass-though deduction is complicated,” said Chrys Lemon of the McIntyre & Lemon law firm, who specializes in tax and financial services law. “In the long run, it may be beneficial but there are uncertainties in the tax law with respect to how you use these pass-through entities that could limit the deduction.”
Corporate Rate Focus
While the biggest banks generally classify their brokers as employees, they have been mostly silent on the issue. Part of the reason is that they’re more focused on the tax overhaul’s call to slash the corporate rate from 35 percent and don’t want to jeopardize overall tax efforts.
The Securities Industry and Financial Markets Association, the largest broker lobbying group, declined to comment on the pass-through provision.
One association that advocates on behalf of independent financial advisers and the brokerage firms they work with, the Financial Services Institute, said it has been reaching out to lawmakers on the issue.
Their members would likely benefit if the final tax bill follows the Senate pass-through provision.