Tax planning will become more important than ever now that the TCJA has completely transformed the tax code landscape. There are significant implications for tax planning on every level, from individuals to businesses.
The following highlights provide a bird’s-eye-view of what tax planning considerations could be made in 2018 and beyond.
For Business Owners
Biz Journal takes note of several items that businesses should consider for tax planning. In particular, sole proprietorships and owners of pass-through businesses (partnerships, LLCs taxed as partnerships, and S corporations) enjoy a new tax deduction equal to 20 percent of qualified business income from a qualified U.S. business. (This deduction is also available to individuals, trusts, and estates and expires for taxable years beginning after Dec. 31, 2025.)
However, there are several limitations to consider that will impact whether your business can take the deduction:
- Qualified business income includes the ordinary income and deductions of a trade or business, but excludes most investment type income such as dividends and interest. Guaranteed payments to partners and reasonable compensation paid to S corporation shareholders or income generated from the business of being an employee are not included. The definition of qualified business excludes “specified service trades or businesses” including, health, law, accounting and financial services, and performing arts.
- Qualified business income is capped at an amount that exceeds either (i) 50 percent of W-2 wages paid by the qualified business or (ii) 25 percent of W-2 wages paid plus 2.5 percent of the unadjusted basis of qualified depreciable property used in the qualified business. Guaranteed payments to partners are not included, although W-2 wages paid to S corporation shareholders may be included.
- Limits on the qualified business income deduction do not apply if taxable income falls beneath $157,000 (315,000 for married taxpayers filing a joint return – MFJ).
Have a tax question? Contact Jim Marshall.
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