Regardless of how the plan may have been sold to the public, the foundation of the recently-enacted Tax Cuts and Jobs Act was the reduction in the C corporation tax rate from 35% to 21%. But Congress couldn’t do this in isolation, because such\u00a0 a one-sided dramatic decrease would cause the business playing field to tilt, with sole proprietors and owners of flow-through entities losing much of their advantage over their corporate competitors. To wit, the effective combined rate on corporate owners would become 39.8% (21% + (79%*23.8%)), while the top rate on ordinary individual income — the rate applied to the income of sole proprietors and owners of flow-through entities, whether distributed or not — would become 37%. Thus, the advantage of a single level of taxation would shrink from 10% to just 2.8%.<\/p>\n
While many politicians tend to treat S corporations and partnerships as replacement terms for “small business,” the reality is quite the opposite — many of the largest businesses in America are operated as flow-through entities. As a result, there was\u00a0tremendous pressure on the tax reform process to provide a break to owners of flow-through businesses so they weren’t left out in the cold with the corporate tax cuts.<\/p>\n
After the House and Senate initially approached the non-corporate tax break from very different angles, the final law found some common ground, resulting in the creation of Section 199A, a new provision of the Code. On its surface, Section 199A will allow owners of sole proprietorships, S corporations and partnerships — and yes, even stand-alone rental properties reported on Schedule E —\u00a0 to take a deduction of 20% against their income from the business. The result of such a provision is to reduce the effective top rate on these types of business income from 40.8% under current law to 29.6% under the new law (a new 37% top rate * a 20% deduction= 29.6%).<\/p>\n
\u00a0Continue Reading<\/a><\/span><\/em><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":" Regardless of how the plan may have been sold to the public, the foundation of the recently-enacted Tax Cuts and Jobs Act was the reduction in the C corporation tax rate from 35% to 21%. But Congress couldn’t do this in isolation, because such\u00a0 a one-sided dramatic decrease would cause the business playing field to… Continue reading Making Sense Of The New “20% Qualified Business Income Deduction”<\/span><\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"_links":{"self":[{"href":"https:\/\/www.hsco-cpa.com\/blog\/wp-json\/wp\/v2\/posts\/297"}],"collection":[{"href":"https:\/\/www.hsco-cpa.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.hsco-cpa.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.hsco-cpa.com\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.hsco-cpa.com\/blog\/wp-json\/wp\/v2\/comments?post=297"}],"version-history":[{"count":5,"href":"https:\/\/www.hsco-cpa.com\/blog\/wp-json\/wp\/v2\/posts\/297\/revisions"}],"predecessor-version":[{"id":302,"href":"https:\/\/www.hsco-cpa.com\/blog\/wp-json\/wp\/v2\/posts\/297\/revisions\/302"}],"wp:attachment":[{"href":"https:\/\/www.hsco-cpa.com\/blog\/wp-json\/wp\/v2\/media?parent=297"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.hsco-cpa.com\/blog\/wp-json\/wp\/v2\/categories?post=297"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.hsco-cpa.com\/blog\/wp-json\/wp\/v2\/tags?post=297"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}