199 A

Corporate profits are distributed in three ways. One portion goes for taxes, one portion for dividends and one portion for retained profits which are used for corporate reinvestment to grow the company. Some companies like Amazon pay no dividend which leaves more for reinvestment. If companies reduce salaries it leaves more profit which could mean more taxes. The dividends are taxed a second time when received by the stock holders. Taxes on retained earnings can be offset by reinvesting in new assets like buildings and equipment as these can be depreciated and depreciation is deductible. Section 199A in the new tax law is a break for small business which allows for a 20% pass through. For example if you have a profit of $200,000 you can pass through 20% or $40,000 and then if your tax bracket is 25% you can put $8,000 in your pocket. This break is not available for regular corporations. Arguments abound as to whether the government gets more money by increasing tax rates or by removing deductions some times called loop holes.