Countless small business owners will be looking for answers revolving around the Tax Cuts and Jobs Act that need to be addressing during the 2019 tax season. Many are trying to determine if they legally qualify for a 20 percent exception of their income. Despite the fact that the IRS issued guidelines for how the complex new law applies, many still have questions and are getting conflicting advice.
According to news reports, the questions often involve deductions designed to help sole proprietors, partners and owners of S corporations (also known as pass throughs because the company income passes through the owners’ 1040 forms). This was designed to give these business owners the same benefits enjoyed by traditional C corporations.
That 20 percent deduction applies if the taxable income does not exceed $157,500 for an individual and $315,000 for couples filing jointly. This number should also include income from other revenue streams outside the business. It is also important to note that:
Tax experts asking for clarification and extensions
As with any complex law, there is going to be a period where the language is refined and amended as the kinks are worked out. This law is not set in stone, and those who handle taxes have already begun the process by requesting clarification on a number of points from Treasury and Congress. This may prompt many to file for an extension as the issues are resolved.
Legal guidance will be crucial during this time
With the new guidelines, there will be many who inadvertently make mistakes or get bad advice from their tax preparer or bookkeeper. Smart business owners will be best served if they are out in front of this issue, working with attorneys who can recognize issues and protect clients as these issues are sorted out.
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