19 Jan What Business Owners and Partners Can Expect from the GOP Tax Bill
The GOP’s final version of the new tax bill has been signed, and it will affect virtually every taxpayer in one way or another. Business owners in particular will find that the new bill significantly complicates the filing process next year, specifically for partners in pass-through entities such as S-corporations and partnerships.
If you have an interest in a pass-through entity, here’s what you can expect when filing your taxes for the current tax year. (Please note that these changes do not apply to your 2017 tax returns.) If you have questions regarding these or any other changes to the tax law, please contact our tax and accounting firm in Provo to set up an appointment with one of our CPAs.
Calculating Your Deductions
While many people will see a reduction in the taxes they pay next year, single individuals with a taxable income between $200,000 and roughly $425,000 will actually be facing a hike in their tax rates—from 33 percent up to 35 percent. Many business owners and entity partners find themselves in this tax bracket.
But don’t let that higher percentage bother you just yet. If you’re an owner in a pass-through entity, you may reap a larger windfall as the result of deductions on your pass-through income. You may be able to shave 20 percent off your earnings through the entity before calculating your taxable income.
Of course, as with most deductions, there is a cap on this; generally speaking, the deduction cannot exceed 50 percent of the company’s total wages, as reported on W-2 tax forms.
The new tax law does offer exceptions and other ways of calculating deductions for pass-through entities. However, these exceptions are much too complex to go into detail about them here. So if you’re a member of a pass-through entity and would like to learn more about calculating your pass-through income deductions, please contact our tax and accounting firm in Provo. We’d be happy to provide you with further details regarding how these tax law changes will affect you.