There was a lot of hoopla about the new Tax Cuts and Jobs Act for 2018. When anything changes, people are wary and when money is involved, people become anxious. It’s understandable, but people are adaptable and will come to work with the new bill’s changes. It’s important to remember in the coming year to apply the necessary changes to your tax claims. You may still be working out your company’s taxes for 2017, but let us give you the break-down of how your company will be affected.
Deductions Based on Business Structures
Businesses that are structured as a C corporation are looking at lower taxes, which is advantageous because one of the setbacks of being a C corporation is having to pay double the taxes. C corporations were taxed at 15-35%, but with the new bill, they can enjoy a flat rate of 21%. If your business is structured as a C corporation and your taxable income is higher than $90,000, you can expect your average tax to decrease.
S corporations will have a new pass-through deduction of 20% on qualified business income. According to the new bill, there is no limitation on the deduction if a taxpayer has a taxable income lower than the threshold amount of $157,500; the threshold amount is $315,000 if the taxpayer is a married individual or filing the claim as a joint return. However, if the taxable income is higher than the threshold amount, it’s possible that the deduction will be restricted in accordance with the amount of wages the business pays and if there is an unadjusted amount of qualified property within the business.
Downsides to the New Deductions
Solopreneurs are people who handle every aspect of their business and don’t have the intention to hire more hands. Entrepreneurs are similar to solopreneurs, but they do networking to get their business known and intend to expand by hiring employees. Solopreneurs and entrepreneurs?whether they are dentists, doctors, lawyers or any other professional business that is built and maintained on the reputation or skill of an individual?will lose their eligibility for the pass-through deduction as it phases out between $315,000 and $415,000 in income.
Despite these new benefits for C and S corporations, small businesses will feel the elimination of other deductions, such as entertainment expenses and The Domestic Production Activity Deduction (DPAD), which was created to encourage businesses to invest in national labor as opposed to sending the work or production of products overseas.
Filing Your Taxes Right
At TPI Group, we understand how confusing taxes are in general, and that the situation has become even more perplexing with the many changes to the 2018 taxes. We welcome you to get in touch so we may provide any financial assistance for your business, including tax preparation, accounting, as well as IRS audit and tax resolution. Need help with your 2017 taxes? We can help prepare you for the October 15 deadline, so contact our team today.