The 2017 tax year has come to a close, and the new “Tax Cuts and Jobs Act” (TCJA) is officially in effect as of January 1, 2018. If you own any company organized as a pass-through entity (Noncorporate business), you may be thinking you’re in the clear for 2018 – surely you’ll be paying a lot less in taxes this year, right? Well, that may not be true as some of the deductions you may have utilized prior to this year have been phased out. If you’re hoping to minimize your tax liability and retain more revenue this year, you might want to consider the following questions:
How does the “Tax Cuts and Jobs Act” actually affect your pass-through business?
Many pass-through business owners thought they would receive a massive tax break with the TCJA in 2018, but in reality, they will see a reduction of less than 5%. It’s important to fully examine what the new tax law means for your business in addition to exploring other proactive ways to reduce your tax liability exposure beyond the minimum savings you may receive from the TCJA. It is also important to evaluate which deduction strategies you used in the past that may have been altered or even eliminated due to the TCJA.
Is your company a specified service trade or business (SSTB)?
The TCJA provides a 20% qualified business income (QBI) deduction for Noncorporate businesses. One of the limitations of the QBI is the specified services trade or business exclusion (SSTB exclusion). The SSTB exclusion applies to most Noncorporate businesses, as it is comprised of companies that offer services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, and all businesses that the principal asset is the reputation or skill of an owner or employee. If the SSTB exclusion does apply, service Noncorporate business owners who otherwise might be eligible for the full QBI deduction may only be able take it if their taxable income does not exceed $157,500 for an individual filing (or $315,000 for a joint filing). If the non-SSTB exclusion Noncorporate business owner’s taxable income is between $157,500 and $207,500 ($315,000 and $415,000 if filing jointly), the modified deduction is phased out.
Which areas of your business would you reinvest in if you were able to retain more of your income?
As a business owner, you are of course focused on investing in your firm and getting your business to the next level through growth and expansion. If you were able to reduce your tax liability and retain more of your revenue you would be able to invest more into your business and grow much faster.
As we’re seeing, many business owners can’t rely solely on the new deductions provided by the TCJA if they really want to maximize their wealth. It’s still important to explore proactive tax strategies that will save you money this year and in the long-term. There are still many tax regulations on the books unrelated to the TCJA that can benefit your business and minimize your legal tax liability.
If you’d like to learn more about how you can increase your tax savings, Tax Law Solutions can help! Get in touch with us today for a free consultation and analysis.