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1 2 1 2❱❱❱❱❱ A C C O U N T I N G THE CHANGE S MADE to business taxation mostly involve the tax rates and how "pass-through" income is taxed. As many have heard, the law reduces the corporate level tax rate to 21 percent. That is, if the entity is structured as a corporation (not an S corporation, which we'll touch on next), the net profit from the business is taxed at a flat rate of 21 percent, a reduction from the previous top rate of 35 percent. While this is good news for corporations, keep in mind that the net, after tax, profit is still subject to what is referred to as double taxation if distributed to the shareholders of the corporation. You should consult your tax advisor about this point to learn more. Now, pass-through income changes are a little more complicated under the new law. Pass-through income, which is income generated by entities organized as a partnership, LLC or S corporation, is passed down to members/partners and shareholders of the entity where that income is ultimately taxed. That is, the pass-through entity does not pay income tax on the earnings at the entity level (like a corporation does), the owner(s) of the pass-through entity do. In general, the law provides that qualified business income from a pass-through entity will receive a 20 percent deduction of the taxpayer's share of that income. There are a few catches, of course. First, this 20 percent deduction is not available for specified service business owners if your taxable income exceeds $415,000 for the year. A specified service business is defined as any business providing services in the following fields: health, law, accounting, consulting, financial services and brokerage services, to name a few. Contact your tax advisor for a comprehensive list of specified service businesses. Second, if you're not a specified service business owner, once your income reaches $415,000, the amount of allowable deduction against your share of flow-through income has a couple of more hurdles to go through and may be subject to further limitations. Lastly, the new tax law also includes changes made to extend and enhance depreciation allowances. For example, Section 179 expensing is increased to allow up to $1 million in current year expensing for business assets purchased and placed into service during the year (as always, limitations apply). In summary of the changes to business income taxes, careful review of how the new tax law applies to your business is merited for proper planning in 2018 and beyond. There are four main changes in the new law that will a˜ect your personal income taxes. First, the income tax brackets for taxpayers filing as "married filing joint" (MFJ) are reduced from previous years and will range AH, THAT FRESH NE W YE AR SMELL IS IN THE AIR. FOR MANY, THE NE W YE AR IS A FRESH START TO TACKLE THOSE RESOLUTIONS MADE EITHER PERSONALLY OR FOR YOUR PR ACTICE. NE W PERSONAL GOALS, NE W BUSINESS OBJECTIVES AND, OF COURSE, NE W CHANGES TO THE TA X CODE! THAT'S RIGHT; CONGRESS PA SSED THE TA X CUTS AND JOBS ACT OF 2017 ON DEC. 20, 2017, WHICH APPLIES TO YE ARS 2018©2025. THIS ARTICLE WILL DISCUSS THE BIGGER PICTURE INCOME TA X CHANGES FOR BOTH BUSINESS AND PERSONAL INCOME TA XES. Happy New Tax Code Changes BY CHRISTOPHER DAVIS, CPA