Democratic contenders for the presidency are taking aim at the 20% qualified business income deduction — a tax break for 'pass-through' entities, including S-corporations and sole proprietorships. Here's what that might mean for small-business owners.
If you're not in a "specified service trade or business," the IRS will allow you to take a reduced deduction if your income exceeds the $160,700/$321,400 threshold, but is still below the $210,700/$421,400 threshold.
Finally, if you're not in a specified service trade or business and your taxable income exceeds $210,700/$421,400, then the deduction you can claim is capped as a percentage of W-2 wages you pay to your employees.Choose your entityPolitical dialogue around the pass-through deduction is forcing entrepreneurs to think more deeply about making changes to their structure.
"Do you weigh the cost benefit of doing it or do you want to deal with the headache of changing entity structure down the road?" asked Dan Herron, CPA and principal of Elemental Wealth Advisors in San Luis Obispo, California. Here are a few considerations for entrepreneurs who are weighing an entity change. Work with your tax professional to figure out what works best for your business.S-corporations and other pass-through entities are known as such because income "passes through" to the owner and is taxed at their individual rate, which can be as high as 37%.VIDEO
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