How the new tax bill will effect businesses and corporation in the 2018 tax year

BUSINESSES AND CORPORATIONS

This bill lowers tax burden on pass-through businesses: The tax burden on owners, partners and shareholders of S-corporations, LLCs and partnerships — who pay their share of the business’ taxes through their individual tax returns — would be lowered by a 20% deduction, somewhat less than the 23% called for in the Senate-passed bill.

The 20% deduction would be prohibited for anyone in a service business — unless their taxable income is less than $315,000 if married ($157,500 if single).

Includes rule to prevent abuse of pass-through tax break: If the owner or partner in a pass-through also draws a salary from the business, that money would be subject to ordinary income tax rates.

But to prevent people from re-characterizing their wage income as business profits to get the benefit of the pass-through deduction, the bill would place limits on how much income would qualify for the deduction.

Nevertheless, tax preparers have warned that this favors passive owners of a business over active owners who actually run things.

This bill slashes the corporate rate: The bill cuts the corporate rate to 21% from 35%, starting in 2018. The bill would also repeal the alternative minimum tax on corporations.

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