A few days before Christmas, President Trump signed the Tax Cuts and Jobs Act. As the first meaningful tax legislation since 1986, accountants were left scrambling to determine proper year-end strategies for their clients. Of course, everyone’s tax strategy is different, I recommend contacting your tax advisor to see what makes sense for you as we move in to the new year.
Reduction Of Corporate Tax Rate
Much has been said about the reduction of the corporate tax rate from 35% to 21%. However, about 94% of businesses in the United States are considered “pass-through” corporations. Prior to enactment of this law, income from S Corporations and sole proprietorships would flow directly to the business owner, who would pay tax based on their tax rate.
Beginning in 2018, taxpayers can deduct “combined qualified business income” from pass-through businesses in an amount of up to 20% of the taxpayer’s taxable income. There is much more to this, so again, it makes sense for anyone who has an ownership interest in a pass-through business to consult their tax advisor.
Updates To Rules
Finally, there are a plethora of rules taxpayers should examine. These include the following:
- Proper deductions and credits
- Retirement plans
- Executive compensation
- Employee benefits
- Insurance provisions (including life insurance and property and casualty provisions)
- Business tax provisions.
And yes, as stated above, it would make sense to meet with your tax advisor about the details of these rules. In my opinion, this should be a first quarter initiative for all small business owners.