The new tax law, called the “Tax Cut and Jobs Act” (TCJA), was signed into law on December 22, 2017 and is the largest overhaul of the US tax system since 1986. The bill is huge, and actually, in our opinion, makes many aspects of the tax code more complex rather than simpler. Some of the details are not entirely clear yet so we’re still learning more each day as the IRS implements various rules and decisions.
However, there is some very good news for small businesses (under a certain income and of a certain type of business activity) and any business that operates as a C-Corporation.
Again the rules are fairly complex (read this article if you have W-2 Employees for further clarification on the deduction) once you get into special types of companies like professional firms or above a certain income threshold; but the main takeaway for the vast majority of small businesses (who make on average about $44,000/year; two-thirds make less than $25,000/year) will get a 20% break on their taxable income with this new law.
So the C-Corporation has suddenly become much more attractive than before. However, the same overall strategy would apply as before: if you own a C-Corporation, you want to maximize expenses through the corporation which would lower your overall net profit (and hence, how much taxes you would pay).
Overall, if you own a C-Corporation or a Pass-through Entity (and you make under $157,500 (individual) or $315,00 (married filing jointly)) you’re going to get a tax break – this is the vast majority of small businesses in the US. The law is complex with many variables but overall is a net positive for small business.
Want to dig deeper into the specifics?
This entry was posted on Tuesday, January 16th, 2018 at 5:33 pm and is filed under Incorporation, Limited Liability Company, QuickBooks & Accounting, Small Biz Management. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.