The TCJA business impact: How will the Tax Cuts and Jobs Act (TCJA) impact your business?
One of the most significant changes under tax reform is the tax treatment of businesses. While much of the focus in the press has been on the reduction in the corporate tax rate to 21%, this only applies to C-Corporations. Although significant, we want to focus this post on the TCJA business impact from the “other” and more complicated change that impacts pass-through entities.
Just a reminder, the following are the four most common entities considered pass-throughs:
- Sole proprietorships
- Limited Liability Companies (LLC)
- S Corporations
The new tax law provides for business income that passes through to an individual will be taxed at individual tax rates less a deduction of up to 20% to bring the rate lower. It sounds easy but it quickly can become tricky since the deduction is subject to limits and restrictions. The 20% deduction can be limited based upon the “type” and income amount just to name two.
In order to understand the implications to your business, we recommend you start by asking the following questions:
- How is my business currently structured?
- Is my business subject to limits and restrictions?
Once answered, you can assess if there is a benefit to making a change in your entity type, and if you should consider forming a new entity to take advantage of the changes.
While minimizing your tax liability is one aspect to consider when selecting the “right” entity structure, it is important evaluate the other pros/cons of each. There is no one size fits all approach, and the decision needs to take into consideration the unique characteristics, goals and objectives of your business.
If you’d like a little more information we encourage you to look back at our blog post from last summer— Selecting the Right Entity Type, or better yet discuss with your CPA when you meet during this filing season.
We’ve still got a few time slots available so let us know if you’d like to schedule some time to come in and analyze your situation.