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.
If you’re a business owner, you know taxes are a part of the gig. And for S Corporations and Partnerships, the spring tax deadline is even earlier than for most (hint: it’s soon). Let’s unpack what these business entities need to know for filing by March 15.
- Filing the correct forms: S Corporations file taxes using Form 1120S while Partnerships file Form 1065. Spouses who own an unincorporated business that is not treated as a Qualified Joint Venture also file Form 1065. File a Schedule K-1 of your designated return to report on information for each partner/shareholder, including the income, losses, deductions, and credits. This information is reported on your separate, individual tax returns.
- When Partnerships don’t have to file: If there was no income or expenses for the Partnership, you don’t need to submit Form 1065.
- Avoiding the Failure to File penalty: We get it – sometimes, it can be hard to hit those tax deadlines. By filing on time by March 15, you can avoid penalties and interests later down the road. The IRS will issue a “Failure to File” penalty of $200 for each month the return is late.
- Applying for an extension: Don’t panic if you’re not ready to file. You can submit a completed Form 7004 by March 15 to request a six-month extension of your business taxes (putting the due date at Sept. 17). Note that this will not extend your time to issue Schedule K-1s.
- Filing electronically: Filing electronically is preferred by the IRS. In fact, Partnerships with more than 100 partners are required to e-file their forms. The same goes for S Corporations with $10 million or more in total assets or that file at least 250 returns a year.
- Dodging an IRS audit: Just like filing individual taxes, businesses must ensure their returns are accurate to avoid audits and penalties. If you do find yourself or your business in a rut with IRS issues, a tax professional can help solve it.
- Asking for help: If you need help preparing your return or figuring out your tax-related documentation, it’s easy to get help from a tax preparer. These professionals can help file any type of tax forms and meet quickly approaching deadlines.
And if you run into issues later? Tax professionals like the team at Tax Defense Network can work with the IRS on your behalf to resolve issues and find agreements that work for you and your business.
Learn more about business taxes at our new BizSolutionsNetwork.com