This post is from our friends at MyCorporation
We’re a couple months into 2018, and conversation is still swirling around changes made in the tax reform legislation. In particular, the Tax Cuts and Jobs Act (TCJA) has been making headlines for giving pass-through entities, like S Corporations, a 20 percent deduction for qualified business income.
Beyond pass-through entities, changes from the TCJA will also affect self-employed taxpayers in a wide variety of ways that touch on other entities like sole proprietorships and partnerships. If your eCommerce business is incorporated as any of these entities, you may be wondering what happens next. Let’s break down these three legal structures — S corporations, sole proprietorships, and partnerships — and whether or not these deductions apply to each one.
The 20 percent deduction for qualified business incomes applies to those self-employed taxpayers who may be able to benefit with their sole proprietorship. However unlike most entities, sole proprietorships are structured so that there is not a separation between the owner and the business. Keep that in mind when you prepare to file your taxes. Additionally, it is also advised that anyone who is self-employed (as a sole proprietorship or any other entity) meet with a tax professional about whether or not they will need to adjust their quarterly estimated tax payments.
The 20 percent deduction for qualified business income applies to this entity too. As noted on CNBC, your taxable income must be below $157,500 if you are single or $315,000 if you are married and filing jointly in order to qualify for the full deduction. If your eCommerce business is incorporated as a partnership, remember that income is passed-through to partners and each individual partner’s income is taxed at their own tax rates. Keep in mind that it’s possible partners married to a high-income spouse to find themselves in a situation where they exceed the taxable income to qualify for a 20 percent deduction.
Again, much like sole proprietorships and partnerships, S corporations may also benefit from the 20 percent deduction since they are a pass-through entity. Tax breaks aside, don’t forget to stay in compliance! S corps will still need to track minutes, maintain their books and records, and keep an updated operating agreement.
Don’t forget to consult a professional!
As a disclaimer, I cannot offer tax advice because I am not a CPA or accountant. The best thing that any entrepreneur can do for their business is to meet with a tax professional. While these changes take effect on January 1, 2018, they generally do not affect the tax returns filed this spring for the 2017 tax year. Schedule in an appointment to meet with a professional with small business experience. Here, you can ask more questions about the TCJA and better prep your business for the tax changes ahead.
Deborah Sweeney is the CEO of MyCorporation.com. MyCorporation is a leader in online legal filing services for entrepreneurs and businesses, providing start-up bundles that include corporation and LLC formation, registered agent, DBA, and trademark & copyright filing services. MyCorporation does all the work, making the business formation and maintenance quick and painless, so business owners can focus on what they do best. Follow her on Google+ and on Twitter @deborahsweeney and @mycorporation.