Issue link: http://palletcentral.uberflip.com/i/1040159
30 PalletCentral • September-October 2018 palletcentral.com ax reform from the Tax Cuts and Jobs Act made significant changes – some favorable and some not – impacting the tax on your personal and business income. The changes will appear when you file your 2018 return. But you have time to use favorable tax changes to your advantage if you act now. Here are some highlights of note: The Tax Rate You'll Pay The key aspect of tax reform by Congress and the President is the lowering of tax rates. How this impacts you depends on the entity used to run your business: • C corporations. The corporation will pay a flat 21% tax rate on its taxable income. If the business uses a fiscal year, there's a blended rate for the 2018 tax year: 21% on the portion of the year beginning on January 1, 2018, and the former graduated tax rates for the portion of the year prior to this date. So, if the corporation has a fiscal year ending June 30th, the 21% rate applies only to half of the corporation's taxable income, with graduated rates used for the other half. • Pass-through entities. If you own a sole proprietorship, S corporation, partnership, or limited liability company, you continue to pay tax on your share of profits using personal tax rates, which are lower under tax reform. But the effective tax rate on business income passed through to you is lowered even more if you can claim the new qualified business income deduction. The qualified business income (QBI) deduction (also called the Section 199A deduction) is 20% of qualified business income if your taxable income is no more than $315,000 if married filing jointly, or $157,500 for other filers. If your taxable income is higher, then certain limitations come into play. The rules are very complex, so the following is just a brief overview of the QBI deduction. If your taxable income is higher than $315,000/$157,500 taxable income threshold, then the deduction is determined by a complicated formula which is the lesser of (1) 20% of QBI or (2) the greater of (a) 50% of W-2 wages, or (b) 25% of W-2 wages plus 2.5% of the unadjusted basis immediately after acquisition (UBIA) of qualified business property. W-2 wages are essentially taxable compensation plus elective deferrals. UBIA usually is the cost of depreciable tangible property when it's placed in service. Here's an example of how the formula works: A business is an S corporation with one owner who is single. The corporation pays her $150,000 of wages and passes through $600,000 of QBI; Impact of Tax Reform on Your Business By Barbara Weltman FINANCE T