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New Tax Laws and How They Affect Your Small Business

Monday, April 30, 2018

Federal tax laws seemingly changed overnight in December, and you’ve had your share of sleepless nights over how to do your business taxes before April 17. The good news is you’ve made it this far, which means you’ve survived one whole tax season under the new tax rules!

The less exciting news? You’re going to go through it again and again and again.

Business tax issues consistently rank on listings of greatest challenges for small-business owners. We can’t blame you there — the tax code isn’t exactly the easiest read. But it sure is important. So, we at Windstream Small Business are here to help you navigate the waters.

Business organization matters

First things first, determine how your small business is legally structured. Four of the five most common organizational types — sole proprietorships, partnerships, limited liability companies and S-corporations — do not pay corporate taxes and instead are considered “pass-through entities,” meaning the business’ profits and losses are passed through to the owners and appear on the owners’ personal tax returns.

Thresholds for pass-throughs

One of the biggest changes to the tax code is that pass-through entities can now deduct 20 percent of their qualified business income — business revenues minus business expenses — until they earn up to $157,000 if single and $315,000 if married in total taxable income.

Exceeding the threshold

Two other rules come into play should your total taxable income exceed that threshold.

Let’s look at specified service businesses, or those in the service areas of accounting, law, health, consulting, athletics, performing arts, financial services or those in which the reputation or skills of employees are critical to the business’ operations. (Think law firms or investment firms.)

Specified-service business owners are phased out of the deduction if they reach $207,500 if single and $415,000 if married in total taxable income. If owners earn an amount between the original threshold and the phase-out threshold, they will be eligible for a reduced deduction.

Figuring out that deduction requires many formulas, so don’t be shy about enlisting the expertise of a certified public accountant!

Digging a little deeper

For a deeper dive into other facets of the federal tax changes, check out the National Federation of Independent Business’ Q&A page and webinar. Be sure to read these two Forbes editorials on the how the changes may give small businesses competitive tax advantages over corporations and how it may pit small businesses owners against each other.

And even though it’s the end of National Small Business Week, Windstream will continue providing tips and inspiration on our Small Business blog. Windstream Small Business is here to help support your company with phone, high-speed internet and cloud-based services designed to meet the needs of the ever-changing business environment. Follow us on Facebook!