by Alfred Burgos, President of Burgos Income Tax.Inc.
A Major tax reform that affects both individuals and businesses was enacted on December 22, 2017, commonly referred to as the Tax Cuts and Jobs Act, TCJA or Tax Reform. The IRS estimates they will need to create or revise more than 400 taxpayer forms, instructions and publications for this upcoming tax filing season. Let me give you an overview of some of the changes that will impact your business tax filing for 2019, with a focus on code section 199A Qualified Business Income. Yes business tax rates have been reduced which is a significant tax break for small business owners.
Code section 199A is a 20% deduction for taxpayer’s with qualified business income from: sole proprietorships, farmers, real estate investors, limited liability companies, and S corporations. This does not include C corporations. The majority of our business clients will qualify for this new tax deduction.
An example: Fred is a single business owner (sole-proprietorship) with a net business profit of $100,000. Qualified Business Income $100,000 x 20% = ($20,000). This is a really nice tax deduction that will benefit the majority of business owners including myself. This is akin to having a $20,000 operating expense that is tax deductible. It lowers the tax liability of the business owner, so they may grow their business, hire more employees or invest in machinery and tools.
In our tax preparation offices we see many small businesses that have net incomes of $1,000 to $50,000, so they will get an additional tax deduction of $100 to $10,000.
The calculation becomes more complicated when certain thresholds are met, for example when taxable income is $315,000 to $415,000. Certain types of businesses will not qualify if they exceed this threshold.
Check back soon for Personal Tax update!
Alfred Burgos is a long time member of RHBA and past recipient of the Business Person of the Year Award.