15760 Ventura Blvd, Suite 610 Encino, CA 91436
15760 Ventura Blvd, Suite 610 Encino, CA 91436
Personal, Affordable Payroll Services, Bookkeeping, and Tax Processing for Small Business throughout Los Angeles County.

Does Your Small-Business Qualify for this Significant Tax Break?

As a small business owner, you surely know how important it is to save every dollar you can. As a result, you might be interested in a newly-introduced 20 percent tax break available to some small businesses.

Among the features of the Tax Cuts and Jobs Act is the “qualified business income deduction.” This allows owners of S-corporations and partnerships and sole proprietorships to deduct up to 20 percent of their business income.

However, there is a certain level of uncertainty regarding who actually qualifies for this incredible tax break. Here’s what you need to know about who qualifies for this tax break and how to proceed if you do.

What are Pass-Through Entities?

This business income deduction applies to pass-through entities. A pass-through entity is any business that passes its income straight to the owners of the business. This primarily includes partnerships and S corporations however; this deduction also applies to sole proprietorships and single-member LLCs.

What Businesses Qualify for the Deduction?

Aside from meeting the pass-through entity qualification, small business who wish to receive this deduction must meet certain income thresholds.

This small business deduction applies primarily to business owners whose business income, if filing independently, does not exceed $157,500 or $315,000 for joint filers. While these income thresholds do eliminate many small businesses, some businesses may still qualify for the deduction even if their qualifying income exceeds these limits.

The IRS implemented a secondary cap for businesses with “specialized services.” For instance, doctors and lawyers can qualify for a deduction if the taxable income is above the first mentioned cap, but below $207,500 for single filers or $415,000 for joint filers.

If your taxable income is above this secondary limit, but your business does not provide specialized services, then your deduction will likely be capped as a percentage of the wages paid to your employees.

Hiring a Small Business Accountant

If you meet the above requirements, you may be able to claim up to a 20% deduction on your individual tax return.

Qualifying for this deduction also means that you, the taxpayer, can adjust your estimated taxes to account for the deduction that you will receive. However, you should proceed with caution as underpaying your estimated taxes can leave you open to certain fees and penalties imposed by the IRS. These penalties can be quite costly, so as a small business, it might be best to hire a professional tax preparation and planning service.

ATPP is a professional, full-service accounting, taxes and payroll firm located in Southern California. Feel free to contact us today to learn how we can help you effectively and efficiently manage your taxes this year.