The Tax Cuts and Jobs Act of 2017 that was enacted into law on December 22, 2017 included many dramatic changes to the tax laws. One of these changes was the creation of a new tax deduction for up to 20% of Qualified Business Income earned by sole proprietors, S corporations, and partnerships.
This new deduction will benefit small business owners in all kinds of businesses.**
The deduction was created in order to provide small business owners with a reduction in their effective tax rate on their business income similar to that enacted for large “C” corporations. This was done through the creation of this additional tax deduction for small business rather than a lowering of the individual tax rate.
Unfortunately, unlike the flat 21% tax rate now applicable for “C” corporations, the tax break for other small businesses is more complicated and requires careful planning in order to maximize this tax benefit.
A significant number of small business owners who do not carefully plan will miss out on thousands of dollars of possible tax savings each year. We have the experience to help you get the most out of this new provision for your business.
If you are a small business owner operating as a sole proprietor, an S corporation, or a partnership, it is critically important to begin planning as early in the year as possible for how to maximize the benefit from this new tax deduction. There will be a great many small business owners who lose out on the benefit of this new deduction (or only benefit at a fraction of what they could have) because of not adequately planning for how to structure certain aspects of their business to maximize this deduction.
The new rules can be extremely complicated. In August 2018, the Treasury issued Proposed Regulations providing guidance to clarify many provisions. For many small business owners, careful planning will make a significant difference in how much their taxes will be reduced as a result of this new opportunity.
We can help you in carefully considering how the new law applies in your unique situation and, if applicable, assist you in structuring certain aspects of your operations to maximize the tax benefit to you.
Contact us today at 813-760-0722 or email us at tim@timjklacecpa.com to set up an appointment where we can explore how you may be able to better maximize this new tax benefit in your unique situation.
** Note that the deduction for up to 20% of Qualified Business Income is eliminated in the case of income earned by a so-called Specified Service Trade or Business owned by taxpayers whose taxable income exceeds $415,000 for a married couple filing a joint return, or $207,500 for all other taxpayers. (The deduction phases out for married / joint filers with taxable income between $315,000 and $415,000, and for other taxpayers with taxable of between $157,500 and $207,500.)
A specified service trade or business includes a trade or business involving the performance of services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, investing and investment management, trading, and certain other limited situations.
It is important to note that taxpayers whose taxable income is below the thresholds described above are still entitled to the new deduction even if the Qualified Business Income is earned by a specified service trade or business.
It is also important to note that the new tax deduction does not apply to performing services as an employee.
Don’t miss out on this valuable new tax deduction. Call us today.
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