It's almost time for business tax preparation again! As you are tax planning for the close of 2018, we wanted to make sure that you, small business owners, have the latest tax cuts (that may be applicable to you) on your radar.
If you are self-employed, own a Limited Liability Company or an S-Corporation, you probably qualify for what is likely the best tax incentive for small business owners in the history of our nation. The 2017 Tax Cuts & Jobs Act created the Section 199(a) deduction, which permits owners of pass-through entities (like those mentioned above) to deduct up to 20% of qualified business income (with some limits and restrictions).
If you don't have a tax professional hired yet, you should definitely consider getting one, since this on the most complex provisions in the Tax Cuts & Jobs Act. Congress enacted this provision to create more tax parity between small business owners and large corporations that already benefit from many tax breaks.
The Tax Cuts and Jobs Act cut the corporate tax rate from 35 percent to 21 percent but only reduced the top personal tax rate from 39.6 percent to 37 percent. Excluding 20 percent of qualifying income effectively cuts the top rate from 37 percent to 29.6 percent.
Some of the factors that could disqualify you for all or part of the pass-through deduction include the amount of your business income, other sources of income and the nature of your business.
If your total taxable income — which includes interest and dividends, as well as income reported on Form W-2, if you also have a regular job — is less than $157,500 on an individual return or $315,000 on a joint return, you’re a winner. You can deduct 20 percent of your qualified business income no matter what type of business you’re in (for instance, professional, health and law services).
The magic number for small business owners is to have total taxable income be less than $157,500, or $315,000 for married couples. Anything over these amounts, phases out and disappears once taxable income tops $207,500 for singles and $415,000 for couples.
Don't miss out on this historic tax deduction, which is only slated to affect 2018 and 2019 taxes!