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How Pass-through Businesses Win at Taxes

March 12, 2018

Pass through

Becoming a pass-through entity is even more enticing than ever with new 20% deductions.

Check for these five qualities to make sure your tax pro is qualified and the best for you.

Across the country, CPAs are crunching (and crunching, and crunching) numbers to assess how their clients can benefit from the new tax reform law. And for business owners, becoming a pass-through entity is even more enticing than ever.

What Are Pass-through Organizations?

Nearly 95 percent of businesses in the U.S. are pass-through organizations, and for a good reason. The structure is designed to reduce double taxation, or taxing a business both at a corporate level and on the owners’ level.

Instead of a twofold hit, company profits (and losses) are sent straight to owners or shareholders without a pit stop at the corporate level. Business owners then file and pay taxes through their individual returns (not corporate returns). Sole proprietorships, partnerships, and S corporations all enjoy this no-double-taxation life.

Tax Reform Wins: How Business Owners Can Save Money

2018 is looking up for business owners all over the board. Through the new bill, pass-through entities can deduct 20 percent of the business income that is passed to their individual return. This makes it a great option for low- to mid-income businesses (single-filing threshold is set at $157,500 and the joint-filing threshold at $315,000).

Pass-through structure not in your cards? C Corporations will catch a break with the new tax bill, with a cutting the corporate tax rate cut from 35 percent to 21 percent. A tax professional can help calculate your breaks if you’re above the 20-percent deduction threshold, or if your business is under a different tax classification.

Not every situation has a cookie-cutter solution when it comes to business taxes. If you’re a business owner, a tax professional can also help you decide on the most cost-efficient business entity and what tax reform means for you.

 

Learn more about taxes for businesses at BizSolutionsNetwork.com.

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