I know what you’re thinking — it’s 2018 and I’m still filing my 2017 tax returns. Why would I need to start thinking about the next tax season in 2019? That’s still a year out!
There’s more reasons than one as to why you should look ahead and start prepping now, and if you’re a savvy entrepreneur you probably already know what I’m talking about.
Congress passed the Tax Cuts and Jobs Act (TCJA) on Jan. 1, 2018, which is a new tax reform law that carries big changes for small businesses. Some of the most major changes from the TCJA include:
- A 20 percent deduction for pass-through entities with qualified business income. (Which entities are these again? Pass-through legal formations include LLCs and S Corporations.)
- For any business incorporated as a C Corporation, they will be taxed at a flat rate of 21 percent. This allows their average tax rate to go down, so long as they have incorporated as a C Corp and have a taxable income of more than approximately $90,000.
What impact does this have on small business owners in 2018?
While the TCJA might have been passed this year, it is generally not slated to impact taxpayers filing their returns for the 2017 year. This means that the above deductions don’t take effect until next tax season.
Since we’re a year out from the changes fully going into effect, now is the time to make an appointment with your accountant. Your tax professional will likely be very familiar with the rules and terms behind the TCJA, too.
If you’re considering restructuring as an S Corp, C Corp, or LLC, they will be able to guide you in the right direction. If you’re already incorporated as one of these entities and entitled to a deduction, they can help you prep your materials early. For instance, if you have an LLC or S Corp and will receive the 20 percent deduction, they’ll provide more information about the importance of keeping updated operating agreements, tracking minutes, and maintaining books and records in order to stay in compliance.
Save your tax records and receipts from previous years, as you may need to bring them with you, and ask any questions you may have in order to better strategize for the tax changes ahead.
Got a question for Deborah? Ask it in the comment section.