What the New Tax Reform Bill Means for Your Business
Congress has recently passed a new tax law. The new tax regime has massive implications for people at all levels, but it is especially important for people who are financially successful. As part of our dedication to you, we want you to understand what the new regulations mean for you and your business.
New Tax Brackets
Income tax brackets have changed for both individuals and corporations. Taxes are lower across the board. No one likes paying taxes, and now the burden is lighter.
The corporate tax rate has been cut from 35% to 21%. While there has been some debate whether this tax rate will remain in place forever, near-future prospects are now a little bit brighter. The new tax rate is closer to the international standard.
Pass-through businesses do not see as much benefit from this new tax reform as they might think. The new tax law includes a 20% income deduction for pass-through entities, which seems solid in comparison to the 21% C-corp tax rate.
However, when you combine the deduction with the lower top tax rate on regular income, you come out with a tax rate around 29.6%. This means that companies who are in the top 1% still have a significant advantage.
Between 2017 and 2026, individuals will be allowed to deduct 20% of “qualified business income” from partnerships, S corporations, and sole proprietorships. In addition, they can deduct 20% of qualified real estate investment trust dividends, qualified cooperative dividends, and certain publicly traded partnership incomes.
A big part of understanding this tax deduction is understanding what “qualified business income” is. This is the net number of qualified items of income, gain, deduction, and loss with respect to a qualified trade or business within the United States. These items need to be effectively connected with the conduct of a trade or business in our country. Specific circumstances are of the utmost importance. Income from investments, deductions, or losses does not count.
This “qualified business income” does not include an S corporation’s shareholder’s reasonable compensation, payments to a partner who is acting in a capacity other than their work as a partner, or guaranteed payments.
The Estate Tax
According to the new tax plan, almost everyone is exempt from estate taxes. That means that after someone passes on, they can leave more money for their children. The new base amount is $22.4 million for couples. This means that someone can give a $20 million gift to their child, and neither party will have to pay estate taxes on it.
What you should keep in mind is that the tax bill does not make changes to the step-up rules. This means that your heirs’ cost basis in the assets are reset after you pass on.
Many of these provisions have ‘sunset’ clauses, meaning that they are not going to last forever. Political parties and politicians rotate, and certain provisions, clauses, and riders are not likely to last forever.
You should also keep in mind that some of these new regulations will not begin this year. Your tax bill for 2018 will probably be very similar to your tax bill for 2017.
If you have any questions about how to reduce your taxes, contact us at Tax Reduction Concierge. Our team of experienced, insightful, and resourceful specialists can help your business out today. Call us now at (800) 575-8496.
December 22, 2017 12:01 pm
Categories: Tax Reform