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Are you confused by the new corporate tax law for pass-thru’s (LLCs, S-Corps and sole proprietors)? As I delve into this further, I see that it will have a benefit for many of these entities. In general, the pass through companies will get a 20% deduction off net income after reasonable compensation but it is somewhat complicated.
1) S-Corps must be compliant with Reasonable Compensation rules
2) Income limitations for the household income on the tax return may affect those in service corporations
3) Limitations based on wages suggest a calculation on wages paid to non-owners may lead to higher wages for employees under the right circumstances
4) Investment in qualified investment in tangible business property also affects the deduction and may lead to further investment in such goods.
As I mentioned, it is complicated but I am getting increasingly excited as I delve into this more about the potential benefits to small business owners. I must stress that everyone’s situation is very different, so take this for the high-level view that it is. I encourage people to work with a tax professional to get a true look at their specific situation.
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