One of the many talking points in politics recently has been about the newly passed federal income tax bill.
We all want to know how we’ll be affected by this new bill, small business owners included.
So here’s the low-down.
20% Deductions for Pass-through Entities
Because small businesses are taxed at individual rates, they’re sometimes created as pass-through entities to avoid the double taxation of regular corporations.
With the new law, the tax rate for these small businesses is reduced from 39.6 percent to 37 percent. It increases the income amount that can be claimed as pass-through from 17.4 percent to 20 percent.
No More Meal and Entertainment Deductions
Unfortunately, entertaining or dining with clients for business purposes is no longer considered a deduction. The new rule won’t affect meals you may have during business travel or employer-hosted parties.
Corporate Tax Rate Lowered to 21%
The corporate tax rate maximum has been lowered from 35 percent to 21 percent. So if you happen to exceed the 20% income threshold for pass-through entities, you can take advantage of this lower rate by becoming a C corporation.
The new law has also made it easier to change pass-through entities to C corporations.
Confused about which business entity type to incorporate as in order to benefit the most from these and other new tax laws? Talk to MaxFilings today and we’ll help you decide.