Win at Taxes: Classify your Small Business as a Pass-Through Entity


Across the country, CPAs are crunching (and crunching, and crunching) numbers to assess how their clients can benefit from the new tax reform law. And for small business owners, becoming a pass-through entity is even more enticing than ever. Learn the details of the new law and see how it may affect your small business.

What is a Pass-Through Entity?

Nearly 95 percent of businesses in the U.S. are classified as a pass-through entity, and for a good reason. The structure is designed to reduce double taxation, or taxing a small business both at a corporate level and on the owners’ level.

Instead of a twofold hit, company profits (and losses) are sent straight to owners or shareholders without a pit stop at the corporate level. Therefore, small business owners are then able to file and pay taxes through their individual returns rather than corporate returns. Sole proprietorships, partnerships, and S corporations all enjoy this escape from double-taxation.

Tax Reform Wins: How Small Business Owners Can Save Money

With the new tax reform bill, 2018 is looking up for small business owners all across the board. With these upcoming changes, a small business classified as a pass-through entity can deduct 20 percent of the business income that is passed to their individual return. This makes it a great option for low to mid-income businesses (single-filing threshold is set at $157,500 and the joint-filing threshold at $315,000).

If pass-through entity structure isn’t in the cards for your business, there are still ways to save with the new tax reform. For instance, C Corporations will also catch a break with the new tax bill, which will cut the the corporate tax rate cut from 35 percent to 21 percent. If you’re above the 20-percent deduction threshold, or if your business is under a different tax classification, you should consult your tax professional to help calculate your breaks.

Not every situation has a cookie-cutter solution when it comes to business taxes. If you’re a small business owner, a tax professional can help you decide on the most cost-efficient business entity and how tax reform will impact you.

The SmallBizRising Blog is designed to be an educational content hub pulling information, best practices and practical advice for the small business owner and features topics including accountingmarketingtechnology and more.  Be sure to subscribe to stay up to date with new content as it is posted.  The blog was created by The Neat Company and receives contributed content from a group of contributing companies that provide technology, services and solutions to small businesses.

This article presented by:
Tax Defense Network
Tax Defense Network has helped hundreds of thousands of people with tax debt and tax compliance since 2007. Our mission is to provide viable and affordable solutions to your tax and financial challenges.
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